How to Calculate a Capitalization Rate

Video Transcript

"Hello! I'm Spence with Account Team in Salt Lake City. Jeannine and I work on people's books and help them with their accounting and their tax needs and analyzing their business and help them figure out how to make decisions about their businesses. Today, I'm going to talk about capitalization rate or cap rate. This is something if you buy a piece of equipment, you will have to know if someone were lending you money to buy some sewing equipment because you're sewing up T-shirts or some other item like that. The bank will look what your payments are over 5 years but they'll try to reduce on who what that be in the present day value. If you got terms from a bank to make payments but you can buy another machine and if you will pay cash you got a better price, you can analyze which one is the best deal for you. Capitalization rate is the cap rate. It's the rate of return of property well-produced on an owner's investment."