The Capitilization Rate is a measurement of the rate of return of the cash flow generated from a commercial property. It is calculated by taking the cost of the property divided by the net operating income (NOI). (The net operating income is the total income minus expenses.) You use annual figures when computing the capitilization rate. It is an important factor when determining the market value of a property.
The Capitilization rate is important when investors look at commercial property to determine its value.
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