When it comes to determining a property’s profitability, most investors use a cap rate. But what is cap rate in investing and how does it work? When you first get into real estate investing, the cap rate is the first term you will come across. You’ll often hear other investors say things like, “This rental property has a 7.5% cap rate.” But what does a 7.5% cap rate mean exactly? Short for capitalization rate, the cap rate is not the easiest concept to grasp.