Return on Assets (ROA)

Return on assets takes income and divides it by the total assets that earned it. For a single property bought for cash, the cap rate is effectively its return on assets: NOI divided by the full purchase price, with no regard to how much of that price was borrowed.

That is the property-level view. The example property returns 5.78% on its $500,000 cost regardless of who owns it or how. Return on equity is the owner-level view and changes with every financing decision.

Keeping the two apart is what makes cap rates comparable across buyers. A cash buyer and a buyer with a 75% loan see the same cap rate on the same property. Their returns on equity will differ, sometimes in opposite directions, depending on the loan's cost.