Cap rate, or capitalization rate, is a measure of the ratio between the net operating income of a property and its value or purchase price. It is typically expressed as a percentage. The cap rate is used to estimate the potential return on an investment in a rental property, and is often used to compare different properties as a means of identifying which one may be a better investment opportunity.

To calculate the cap rate, you divide the property’s net operating income by its purchase price or value. For example, if a property has a net operating income of $50,000 per year and a purchase price of $500,000, the cap rate would be 10% ($50,000 / $500,000).

Cap rates can vary widely depending on a number of factors, such as the location and condition of the property, the state of the local real estate market, and the overall economic environment. In general, properties with higher cap rates are considered to be better investments, as they offer the potential for higher returns.