A cap rate is the rate of return an investment is expected to generate based on the income received.  A higher cap rate is a higher ROI and sometimes that also sometimes means more risk, a lower cap rate is a lower ROI that also sometimes means less risk.  To calculate this number, divide the net operating income (NOI) by the purchase price.


NOI = $6,000 (Net Profit after all expenses are deducted)

Purchase Price = $100,000

Cap Rate = $6,000 / $100,000 = 6%