Definition of Capitalization Rate (Cap Rate):
Orange County Capitalization Rate:
This is the rate of return on a Orange County real estate investment property established on the expected revenue that the property is anticipated to create. This calculation is primarily used to assess the Orange County investor's probable return on their investment. This and be found by dividing the income the property generates (after removing fixed and fluctuating costs) by the market value of the property.
Here is a good working definition of Capitalization Rate:
Let’s say that Sydney buys a property that will generate $200,000 per year and he pays $1,000,000 for it, the capitalization rate is: 200,000/1,000,000 = 20.00%. Now what happens if the property's value rises to $1,500,000 two years later? Now the capitalization rate is now not quite so good; 200,000/2,000,000 or 10.00%. This happened because Sydney could possibly sell the Orange County property for $2 million and use the proceeds for another investment opportunity.