Which metric is commonly referred to as the yield on a real estate investment?

Which metric is commonly referred to as the yield on a real estate investment?

• A. Cap Rate
• B. NOI
• C. GPR
• D. NPR

Answer: (A)

Cap rate expresses the yield on a real estate investment. It measures how much annual income the property generates relative to its price by dividing net operating income by the property’s value or purchase price. This is an unlevered metric, meaning it focuses on the operating performance and ignores financing, taxes, and potential price changes. For example, $120,000 of NOI on a $1,200,000 property yields a 10% cap rate. It’s widely used to compare properties and markets quickly. Remember, NOI is the income figure itself, while gross potential rent is the top-line rent before vacancies and concessions, and other terms aren’t standard measures of yield.

Cap rate expresses the yield on a real estate investment. It measures how much annual income the property generates relative to its price by dividing net operating income by the property’s value or purchase price. This is an unlevered metric, meaning it focuses on the operating performance and ignores financing, taxes, and potential price changes. For example, $120,000 of NOI on a $1,200,000 property yields a 10% cap rate. It’s widely used to compare properties and markets quickly. Remember, NOI is the income figure itself, while gross potential rent is the top-line rent before vacancies and concessions, and other terms aren’t standard measures of yield.