Which term describes the overall rate of return on an investment property?

The term that describes the overall rate of return on an investment property is capitalization rate, often referred to as the cap rate. This metric is critical in real estate investment analysis as it provides a clear snapshot of the relationship between the income generated by the property and its value.

The cap rate is calculated by dividing the net operating income (NOI) of the property by its current market value or purchase price. This approach allows investors to assess the potential return on their investment relative to the property’s cost. A higher capitalization rate indicates a potentially higher return, which can attract investors looking for profitable opportunities.

In the context of evaluating investment properties, the capitalization rate serves as a useful tool for comparing different properties and assessing investment risk. While the other terms, such as discount rate, rate of return, and yield rate, also relate to investments, they either focus on different aspects of investment analysis or refer to broader financial performance measures rather than the specific interplay of income and property value as clearly defined by the cap rate.