A property valued at $150,000 generates an annual income of $18,000. What is the property’s capitalization rate?

To determine the capitalization rate, also known as the cap rate, for a property, you can use the formula:

Cap Rate = Annual Income / Property Value

In this case, the property generates an annual income of $18,000 and is valued at $150,000. Plugging these numbers into the formula gives:

Cap Rate = $18,000 / $150,000 = 0.12

To express the cap rate as a percentage, multiply the result by 100:

0.12 * 100 = 12%

Thus, the property's capitalization rate is 12%. This means that the property generates a return of 12% on its value, which is vital for investors to assess the potential profitability of the property. A higher cap rate typically indicates a more attractive investment opportunity, while a lower cap rate might suggest a lower return relative to the property value.