What does the cap rate mean in real estate
If the Fed adjusts rates, that can fluctuate CAP rates up to 1 percent, even with no changes to the property itself. If you are a real estate investor, rising interest rates will mean a fall in property values. When interest rates rise the cost of debt rises and that decreases your net cash flow. The cap rate is a very common and useful ratio in the commercial real estate industry and it can be helpful in several scenarios. For example, it can and often is used to quickly size up an acquisition relative to other potential investment properties. Definition: Capitalization rate defines the percentage number used to determine the current value of a property based on estimated future operating income. In other words, taking the net operating income from an apartment complex and dividing it by the capitalization rate would yield the approximate current value of the complex.