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Capitalization rate (or " cap rate ") is a real estate valuation measure used to compare different real estate investments. Although there are many variations, the cap rate is generally calculated as the ratio between the annual rental income produced by a real estate asset to its current market value. Most variations depend on the definition ...
The common measure of rental real estate value based on net return rather than gross rental income is the capitalization rate (or cap rate). In contrast to the GRM, the cap rate is not a multiplier but a rate of annual return. A similar multiplier to the GRM derived from net return would be the multiplicative inverse of the cap rate.
This is simply the quotient of dividing the annual net operating income (NOI) by the appropriate capitalization rate (CAP rate). For income-producing real estate, the NOI is the net income of the real estate (but not the business interest) plus any interest expense and non-cash items (e.g. -- depreciation) minus a reserve for replacement.
Mortgage constant, also called "mortgage capitalization rate ", is the capitalization rate for debt. It is usually computed monthly by dividing the monthly payment by the mortgage principal. An annualized mortgage constant can be found by multiplying the monthly constant by 12 or by dividing the annual debt service by the mortgage principal. [1]
Property investment calculator is a term used to define an application that provides fundamental financial analysis underpinning the purchase, ownership, management, rental and/or sale of real estate for profit. Property investment calculators are typically driven by mathematical finance models and converted into source code.
In real estate, the term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to 150,000 or $130,000 / $150,000, or 87%.
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