In this article, we will be digging deeper into what a cap rate is, along with the factors that you need to consider when determining your ideal cap rate and running the calculations for each house you look at. What is a Cap Rate?In the simplest of terms, a capitalization rate is an indicator that investors will use to help determine their rate of return—or ROI (return on investment) if you prefer. It may be a modest percentage or it could be more aggressive. Your target may depend on your market(s), your budget, your experience, and your overall income goals. Some investors may want fewer properties with higher cap rates while others will buy more properties with lower cap rates and make their money through a larger investment portfolio. You take your anticipated rent income and then deduct the costs it will take to own and manage the property for the year (property taxes, upkeep, property management fees, etc.).