A capitalization rate, or cap rate, is a way of measuring the return on investment (ROI) of a real estate investment. It is the ratio of the net operating income (NOI) of a property to the price of the property. Cap rates are used to estimate the expected rate of return on commercial or residential real estate, and they are computed by dividing the property’s net operating income (NOI) by the asset value of the property. A "good" cap rate is subjective and dependent on market context, and there are no clear ranges for a good or bad cap rate. However, market analysts say an ideal cap rate is between 5% and 10%, while a cap rate lower than 5% denotes lesser risk but a more extended period to recover an investment. Generally, for most property types, a good cap rate is around 8-10% . It is important to note that the cap rate will not provide a complete return on investment, but it will offer an approximation of how long it will take to recover the initial investment in the property. Investors should spend some time thinking about a reasonable cap rate for the property they are interested in, considering factors such as the property type and location, the condition and location of the property, and other factors that contribute to whether the property would be a good investment.