Also: Capitalization Rate
Cap Rate (Capitalization Rate) is the unleveraged annual return on a real estate investment, calculated as Net Operating Income divided by the property’s purchase price. For a $400,000 property with $32,000 NOI, Cap Rate = 8%.
Also: CoC Return
Cash-on-Cash Return is the annual pre-tax cash flow divided by the total cash invested (down payment + closing costs + initial repairs). It measures the actual return on the investor’s out-of-pocket capital, unlike Cap Rate which ignores financing.
Also: NOI
Net Operating Income (NOI) is a property’s gross annual rent minus all operating expenses, excluding mortgage payments, depreciation and capital improvements. NOI is the numerator in the Cap Rate formula.
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