(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
I’m not completely sure about this one but a cap rate is a rate that measures how an asset, usually real state or PPE performs in terms of how much of it’s cost is returned as an operating income.
I think if u add a time dimension to the calculation u can get a sort of yield of the asset and compare it to other assets and evaluate performance or the time required to get your initial investment back.
Sorry if it’s not completely clear English isn’t my first language, and also Im not completely sure if this is what you asked.
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