The rate of return expected by an investor on a property is known as what?

The capitalization rate is a key concept in real estate investment and appraisal, representing the rate of return that an investor expects to earn on an investment property. It is calculated by dividing the property's net operating income (NOI) by its current market value or purchase price. This rate helps investors assess the potential profitability of a property and enables comparisons between different investment opportunities.

For instance, a higher capitalization rate indicates a potentially higher return on investment, suggesting either a lower property value, higher income, or a combination of both. Investors often use the capitalization rate as a tool to evaluate the risk and reward associated with various investment properties, aiding in their decision-making process.

Understanding the capitalization rate is crucial for appraisers and investors alike, as it is an essential element in determining a property's value and gauging its attractiveness as an investment.