Cap Rate
The cap rate (capitalization rate) is the fundamental metric for evaluating income-producing properties. Formula: Cap Rate = Annual Net Operating Income ÷ Property Value. Net operating income excludes estimated vacancy, property tax (IPTU), condo fees, and maintenance costs borne by…
Explanation
The cap rate (capitalization rate) is the fundamental metric for evaluating income-producing properties. Formula: Cap Rate = Annual Net Operating Income ÷ Property Value. Net operating income excludes estimated vacancy, property tax (IPTU), condo fees, and maintenance costs borne by the owner.
In Florianópolis, cap rates for residential properties range from 4% to 7% per year depending on the neighborhood. Commercial properties and logistics warehouses tend to have higher cap rates (7%–10%) due to greater vacancy risk. The cap rate does not account for property appreciation — for that, use the investment’s total internal rate of return (IRR).