What Does Cap Rate Really Mean?

Cap rate is supposed to be a measure of price, which is inverse to the sale price: i.e., the higher the cap rate, the lower the sale price, the lower the cap rate, the higher the sale price. This is because the cap rate measures the rate at which an income stream, in the case of multifamily buildings, it's the Net Operating Income (NOI) after all expense, but before financing, is capitalized. If that's a little complicated, look at the table below for a simpler explanation.

Cap Rate	Price	Manageability	Condition
13%	War Zone	Harder to Manage	Poor
12%	Cheap
11%	Cheaper Than Average
10%	Average	Average	Average
9%	More Expensive Than Average
8%	Expensive
7%	Really Expensive
6%	You Can't Make Money	Easier to Manage	Excellent
5%	Fagetaboutit