Cap rate is the property’s ROI.
If the cap rate is high, the cash flow is high.
If the cap rate is low, the cash flow is low.
You calculate cap rate by dividing the net income of the building by the value of the building.
So let’s say the net income is $100,000.
Let’s say the value of the building is $1,000,000.
Then if you divide 100,000 by 1,000,000, you would get .1.
If you change the income to 150k, you would get 15%.
If you change the income to 50k, you would get 5%.