What is the result of applying the CAP Technique?

The CAP Technique, or Capitalization Rate Technique, is primarily used in real estate to determine the value of a property based on its net income. This method involves estimating the value of an income-producing property by dividing the net operating income (NOI) by the capitalization rate (cap rate). The cap rate is derived from market studies and reflects the expected rate of return for a particular type of property.

By using this approach, real estate professionals can analyze how much an investment property is worth based on the income it generates, making it a vital tool for investors and appraisers in the commercial real estate sector. This reliance on income generation is fundamental to understanding the financial performance and investment potential of properties, especially in commercial markets.

This technique distinguishes itself from other options, as assessing tenant credit risks, calculating estimated property repairs, and determining annual property taxes do not directly relate to valuing a property based on its income, which is the core purpose of applying the CAP Technique.