Cap rate

Net operating income divided by purchase price. The unleveraged yield a buyer earns on a property at today's NOI.

Cap rate is the most common shorthand for property yield. A 6% cap rate means the building produces 6% of its purchase price in NOI each year, before any financing. Buyers in strong markets accept lower cap rates (paying more per dollar of income); buyers in weak markets demand higher caps. Always compare like to like — broker pro-forma cap rates are usually best-case and worth re-underwriting.