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Investment
Cap rateCapitalisation rate
Cap rate expresses a property's annual net operating income as a percentage of its value or purchase price. It allows investors to compare the income return of different assets independently of how each purchase was financed.
How Cap rate is calculated
Cap rate = (Annual NOI ÷ Property value) × 100
Why Cap rate matters for your revenue
Cap rate is the standard yardstick when choosing between markets or assets. Because it uses NOI, understating operating costs inflates it — which is why short-term rental cap rate claims should always be checked against real expenses.
Related terms
- Net operating incomeNet operating income is the revenue a property generates after operating expenses but before mortgage payments, depreciation and income tax. Operating expenses include management, cleaning, utilities, insurance, supplies and routine maintenance.
- Rental yieldRental yield is annual rental income as a percentage of property value. Gross yield uses income before costs; net yield uses income after operating expenses and is the more meaningful figure for comparing investments.
- STR vs LTRSTR versus LTR is the comparison between letting a property to short-staying guests and letting it to a tenant on a long lease. Short-term letting typically produces higher gross income with higher costs, more variability and more regulation; long-term letting produces lower, steadier income.
- RevPANRevenue Per Available Night is the short-term rental equivalent of RevPAR, applied to a whole property rather than a hotel room. It divides total booking revenue by every night the property was available in the period, including nights blocked for maintenance only if they were bookable.
Revenue Management at Pinnacle Path
Cap rate sits inside our revenue management work. See how we apply it market by market.