In property management, what does "cap rate" help determine?

Cap rate, or capitalization rate, is a crucial metric in property management and real estate investment that helps determine the value of a property based on its expected income. It is defined as the ratio of a property's net operating income (NOI) to its current market value (or acquisition cost).

Investors and property managers use the cap rate to evaluate the return on investment of a rental property. A higher cap rate typically indicates a potentially higher return on investment, suggesting that the property is effectively generating income relative to its value. Conversely, a lower cap rate may suggest that the property is overvalued or that it may not generate enough income relative to its price.

This assessment aids investors in making informed decisions about purchasing, selling, or holding properties, thus providing a clear insight into the investment's performance potential.

The other choices do not pertain to the financial evaluation of property value based on its income generation capabilities. The age of the building, the number of tenants, and total operating expenses relate to different aspects of property management and performance but do not directly guide valuation in the context of expected income.