Definition: Capitalization rate defines the percentage number used to determine the current value of a property based on estimated future operating income. In other words, taking the rental income from an apartment complex and multiplying it times the capitalization rate would yield the approximate current value of the complex.
The capitalization rate would be determined based on an appraisal and/or the cap rates of similar properties that have sold recently. By taking another apartment project that sold recently, determining it's rental income, you would divide the income by the sold price to get the cap rate.
Also Known As: cap rate
