Main Page | See live article | Alphabetical index A cap rate is the assumed rate of return on an investment in real estate. To determine the value of a particular real estate asset, divide the net income or the net cash flow on the asset by the assumed cap rate. Effectively, this values the real estate as a perpetuity. An alternative use of the concept is to take the net income or net cash flows, and divide it by the purchase price in a sales transaction, to determine the implied cap rate. Used in this fashion, the cap rate indicates rising or falling demand for real estate investments. This article is from Wikipedia. All text is available under the terms of the GNU Free Documentation License.