Capitalization rate (cap rate) is one of the most widely used metrics in commercial and investment real estate. It is calculated by dividing a property's net operating income by its current market value or purchase price. A property generating $50,000 NOI purchased for $500,000 has a 10% cap rate. Cap rates vary significantly by market, property type, and condition. Lower cap rates typically indicate lower risk and higher-demand markets, while higher cap rates suggest greater risk but potentially stronger cash flow. Investors use cap rates to quickly compare properties and assess market conditions.