Cap Rate (capitalization rate) = Annual Net Operating Income ÷ Purchase Price, expressed as a percentage. It measures a property's return as if purchased entirely in cash, ignoring financing — which makes it useful for comparing deals of different sizes or financing structures on an apples-to-apples basis.
There's no universal "good" cap rate — it depends heavily on market, property class, and risk tolerance. Higher cap rates generally signal higher potential return but often also higher risk or a less desirable location; lower cap rates are common in stable, high-demand markets. It's one input among several, not a standalone buy/pass signal.