Module 5 — Return Metrics

Topic 5.1: Capitalization (Cap) Rate

The Cap Rate is used to quickly assess a property's return as if it were purchased with all cash. It measures the relationship between the property's NOI and its price.

Formula: Cap Rate = Annual NOI / Purchase Price

Example: If a property has an annual NOI of $9,000 and you buy it for $180,000, the cap rate is 5% ($9,000 / $180,000). This means you would get a 5% return on your money if you paid all cash. The Cap Rate is the industry standard for comparing investment properties. A higher cap rate generally implies higher risk and/or a less desirable location.

Topic 5.2: Cash-on-Cash (CoC) Return

While Cap Rate measures the property's return, Cash-on-Cash Return measu