What is Cap Rate?
Put simply, cap rate definition is the rate of return on a real estate investment property. In other words, it describes what part of your initial investment will return to you every year.
For example, imagine that you bought an apartment for $100,000 and the cap rate is 10%. It means that each year, 10% of the initial investment will return to you. As you can easily calculate, after 10 years your net cash flow will be equal to zero, which means that from the eleventh year on, you will start actually to make money on this investment.