Cap rate is a way to compare income-producing properties by relating the income they generate to their price.
The capitalization rate is net operating income divided by property value, expressed as a percentage, used to estimate return and compare properties.
Cap rate helps investors and lenders gauge how a property's income stacks up against its value, useful when evaluating farmland purchases.
Land generating $20,000 of net income valued at $500,000 reflects a 4% cap rate.
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