---
title: "Cap rate (Capitalization rate) — What It Means | Ondo RE"
canonical: https://www.ondorealestate.com/glossary/cap-rate/
---

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# Cap rate (Capitalization rate)

Also called: capitalization rate, cap

Net operating income divided by property value, the unlevered yield used to compare properties.

Cap rate expresses what a property earns relative to its price, before any financing. Because it ignores the loan, it compares the asset itself rather than a particular buyer’s deal structure.

It is only as good as the NOI behind it. An NOI that omits vacancy, management, or capital reserves produces a cap rate that flatters the property.

## Why it matters

Cap rate compares assets; cash-on-cash compares deals. You need both, because financing changes the answer.

## Put a number on it

This term feeds the calculators below.

- [Cap Rate CalculatorCompute capitalization rate from NOI and purchase price.](/calculators/cap-rate/)
- [ROI CalculatorMeasure total ROI for a real estate investment with costs.](/calculators/roi/)

## Related terms

- [NOI (Net Operating Income)Income after operating expenses but before debt service, taxes on income, and capital expenditures.](/glossary/noi/)
- [Cash-on-cash returnAnnual pre-tax cash flow divided by the cash you actually invested, measuring return on money out of pocket.](/glossary/cash-on-cash-return/)
- [GRM (Gross Rent Multiplier)Property price divided by annual gross rent, a fast screening ratio that ignores expenses.](/glossary/grm/)
- [Operating expensesThe recurring costs of running a property: taxes, insurance, management, maintenance, and owner-paid utilities.](/glossary/operating-expenses/)

## More in Investing

- [1% rule](/glossary/one-percent-rule/)
- [1031 exchange](/glossary/1031-exchange/)
- [50% rule](/glossary/fifty-percent-rule/)
- [Appreciation](/glossary/appreciation/)
- [CAGR (Compound Annual Growth Rate)](/glossary/cagr/)
- [CapEx (Capital expenditures)](/glossary/capex/)

## Have a question about your own situation?

Ondo handles brokerage, lending, property management and notary under one roof, so the answer does not change depending on who you ask.

[Talk to Ondo](/contact/)[Browse all terms](/glossary/)