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OffMarket Deck · Updated 2026-05-07
Cap rate (capitalization rate) is the ratio of a property's net operating income (NOI) to its purchase price or current market value. It expresses the annual return an investor would earn if they bought the property entirely in cash, with no financing. Cap rate is an unlevered, property-level metric—not a personal return measure.
Cap rate in real estate is the quickest way investors compare income-producing properties across markets and asset classes. It strips away financing differences so you can evaluate the property itself, not your bank's terms.
Key takeaway
Cap rate = Net Operating Income (NOI) ÷ Property Value
NOI is gross rental income minus operating expenses (property taxes, insurance, maintenance, management, utilities, vacancy reserve). It excludes debt service, depreciation, and capital expenditures.
A duplex generates $2,000/month in rent ($24,000/year). Annual operating expenses are $9,600. NOI = $24,000 − $9,600 = $14,400. If the property is listed at $240,000, the cap rate = $14,400 ÷ $240,000 = 6.0%.
On rental-focused deal rows, use the listed price and estimated rent to approximate NOI and cap rate. Open buy-and-hold deals in Florida or Texas, then refine with cash-on-cash once you know your financing terms.
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