As a real estate investor, knowing that “cap-rate” is one of the most important due diligence items specially when purchasing cash flowing investment properties. For this reason, I want to explain what it is and how it works. The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10. A common misconception is that the cap rate is a property-specific metric. This is not quite right, what it really does (the origin of the number itself) is illustrate the general behavior in the marketplace as a whole as it relates to risk/reward appetite. Cap rate is a market-driven metric; it is not asset-specific. In the static sense, the capitalization rate is simply a coefficient which represents this relationship between price and the income this price buys. Check out our website www.CashFlowFL.com for amazing investment Cash Flow Properties and to learn more about real estate investing. Income Property Income property is property bought or developed to earn income through renting, leasing or price appreciation. Income property can be residential or commercial. Residential income property is commonly referred to as “non-owner occupied”. A mortgage for a “non-owner occupied” property may carry a higher interest rate than an “owner occupied” mortgage as it is viewed by lenders as a higher risk. We must understand that what people are buying is the income (at least in the most basic sense). Net operating income (NOI) is a calculation used to analyze real estate investments that generate income.Net operating income equals all revenue from the property minus all reasonably necessary operating expenses. Check out our website www.CashFlowFL.com for amazing investment Cash Flow Properties and to learn more about real estate investing.