Glossary
Cap rate
A property’s annual net income divided by its price.
A building generating $30,000 a year after expenses and costing $500,000 has a 6% cap rate. It lets you compare properties of different sizes on the same basis, before financing.
Low cap rates usually mean the market expects the area to appreciate; high cap rates usually mean higher perceived risk or a weaker location. Neither is automatically better.
Where this matters
Rental Property
Real Estate
Buy property with borrowed money and let tenants repay the loan
- Capital
- $10k+
- First income
- Months
- Risk
- Ceiling
- Seven figures
Commercial Real Estate
Real Estate
Buy buildings valued on their income rather than on comparable sales
- Capital
- $10k+
- First income
- Months
- Risk
- Ceiling
- Seven figures