(First off, whoever came up with the forum deserves a lifetime supply of oven-fresh cookies. I personally find it helpful in learning.)
The best explanation I’ve come up with so far (I’ll be updating this as I gain more clarity)
“When you want to grow your money, you can do that by buying an asset (which could be a business, piece of real estate, etc). Before you buy an asset, it helps to have an idea of the VALUE of the asset.
“One of the ways to find out the value of an asset is by comparing how much income it actually brings in every year with how much the asset cost you to buy. This is the capitalization rate, shown in a formula:
Annual earnings / Asset cost
Capitalization rate is a number that quickly tells you how much per income dollar your asset is costing you. Thus, a low cap rate means you are getting more value from the asset”
Please what else am I missing?
In: Economics
Thanks for your input
So let me see if I get this:
“When you want to make more money, you buy an asset (this could be a business, real estate, and so on.)
” A number that helps you know whether you chose the right asset is the capitalization rate (also known as cap rate) .
“You get the cap rate by comparing 2 numbers: how much extra money the asset makes you in a year (also called the ‘earnings’) and how much you paid to get the assets (that is the ‘cost’ or ‘price’ )”
Please what else can be added?
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