When examining a commercial property for suitability in your investment portfolio, the term capitalization, or CAP rate, is frequently used. It can be thought of as a rate of return on investment, much as bonds have rates of return. But just what is it telling us and why is it so important to understand if you are considering buying a commercial property as an investment?
At its most basic definition, the CAP rate is the rate of return an investor would receive on an all cash purchase. It allows us to compare properties, to spot trends in market values, and..