Capitalisation rates (also known as cap rates) are a measure of the income return on an
investment property. It is calculated by dividing the property's net operating income (NOI) by its current market value. A higher cap rate indicates a lower property value, while a lower cap rate indicates a higher property value.
For example, if a property has an NOI of $100,000 and a market value of $1 million, its cap rate would be 10%. This means that the investor would earn a 10% return on their investment each year.
Cap rates can vary depending on a number of factors, including the type of property, the location, the condition of the property, and the current market conditions.