What is defined as the rate of return a property generates on the owner's investment?

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The correct answer is the capitalization rate, which is a key concept in real estate investment analysis. The capitalization rate, often referred to as the "cap rate," measures the rate of return on a property based on the income it generates relative to its current market value or purchase price. It is calculated by dividing the property's net operating income (NOI) by its total value.

This metric is widely used by real estate investors to assess the profitability and performance of a property, enabling comparisons between different investment opportunities. A higher cap rate typically signifies a greater return potential on the investment, whereas a lower cap rate may indicate a property is more expensive relative to its income generation.

In the context of property investment, the capitalization rate provides a snapshot of expected returns and helps investors make informed decisions on buying, selling, or holding property assets. Understanding this metric is crucial for valuing investment properties and assessing their financial viability within the real estate market.

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