What is Capitalization Rate (Cap Rate)? Capitalization rate (or Cap Rate for short) is commonly used in real estate Real Estate Real estate is real property that consists of land and improvements, which include buildings, fixtures, roads, structures, and utility systems. Property rights give a title of ownership to the land, improvements, and natural resources such as minerals, plants, animals Investors use a property's capitalization rate to determine its potential as a profitable investment. Capitalization rates--often referred to as cap rates--vary by neighborhood and property type.