One of the most common terms you’ll hear referenced in real estate investment and finance is what is known as a capitalization rate, or “cap” rate for short. Cap rates are used as a way to measure a property’s value, and often investors will compare properties based on their relative cap rates. The cap rate of a property is defined as its net operating income (NOI), divided by the purchase price or estimated value of the property. Learn why this is an important concept in real estate investing in this short video.

This video is presented by Bisnow with Professor Peter Linneman from the Wharton School of the University of Pennsylvania. This clip is from the Bisnow series “Everything you Always Wanted to Know About Real Estate, But Were Afraid to Ask”.

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