"better quote" - Author
Capitalization Rate (or "cap rate") is simply defined as the rate of return on a real estate investment property based on the income that the property is expected to generate. Expressed as a percent, it defines the annual cash yield of the property before factoring in leverage.
This definition isn't wrong, but it's woefully incomplete because it implies that a higher return (ie, higher cap rate) is always better. Because why not?
The flip side of return is always risk. So another, perhaps better way to define cap rates -- and by extension evaluate real estate investments -- is with a question. Namely, "does the return warrant the risk?" Put another way, does the property pay you a high enough cap rate given its risk?
GreyBrick partners primary objective is to deliver high returns relative to the risks we take on behalf of our investors. It's an art, and one we aim to perfect every day we come to work.