The Capitalization Rate or "Cap Rate" is a quick-and-dirty way to check the financial outlook of a real-estate investment property. You probably wouldn't use it on your primary residence — there are much better ways of making that type of decision.
In fact, cap rate is a relatively volatile statistic when looking at any single-family or single-unit property. So when it does come in handy? Cap rate is often a useful tool when choosing a multi-unit property like a duplex, multifamily building, or a condo development which are all investments of similar risk levels.
Of course, you don't have to be a billion-dollar real estate investor to get a lot of useful, actionable information out of these rates.
Keep reading for further information and…