Capitalization (cap rate) is a performance ratio measurement used to measure an investment's risk and determine the value of a real estate investment. They measure a potential return with associated risk. While cap rates are an essential measurement, they are not the only tool for calculating rates of returns.  -

When a broker brings a property to market, valuing a property at a cap rate means nothing and further analysis is needed.

Cap rates are best used for properties with a history of steady income generation. Well-established commercial properties are often good candidates for cap rate calculations, particularly when they have several long-standing tenants, consistent cash flow, low-risk tenants, and comparatively low vacancy rates.

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If you use cap rate - you will get a lot from this presentation.