The discount rate is determined from the first part of the cap rate formula as the risk-free rate plus the risk premium and in the example above, would be 4.20% + 7% or 11.20%.

The formula for the cap rate is “Net Operating Income / Property Value.” Higher gross income, lower operating income and a lower property purchase price will all improve the cap rate.

While cap rates are helpful for comparing similar properties quickly, the formula doesn't take into account leverage, the time value of money, future cash flows from property improvements or other ...

The risk-free rate used in the cap rate formula is typically the 10-year Treasury Note which I believe will drop to 2.75% from about 3.9% today by the summer of 2025.

The base rate formula starts with objective measures of prices, yields, costs, rents and interest rates. Income capitalization is an accepted way to measure property wealth. We don’t know what the ...

ROI is one of several profitability measurements in real estate investing. Other profitability metrics are capitalization rate, internal rate of return (IRR), and cash-on-cash returns. Investors ...