About Cap Rate
Cap rate is expressed (as a percentage) by the net income divided by the property value. A riskier investmest generally has a high cap rate. For example, a warehouse in a declining area will typically have a high cap rate. A rental apartment in Santa Monica will generally have a lower cap rate. Investors will need to make more income for a riskier investment to be worth the risk.
Investors will typically use phrases such as "what's the cap on that property" or "what cap rate is that trading at." Similar properties in similar areas often trade at the same cap rate. For example, if an apartment building in a city earns $100k in profit/year and similar buildings in the area trade at a 5% cap rate, that building will be worth $2M.