What measure calculates the expected cash flow in year one divided by the initial acquisition price?

The measure that calculates the expected cash flow in year one divided by the initial acquisition price is known as the Capitalization Rate, often referred to as the "cap rate." This metric is widely used in real estate to assess the profitability and performance of an investment property.

To arrive at the cap rate, you take the first year's net operating income (expected cash flow) and divide it by the total acquisition price of the property. This ratio provides investors with a quick way to gauge the potential return on their investment relative to its cost. A higher cap rate may indicate a more lucrative investment opportunity, whereas a lower cap rate could suggest lesser returns.

While Gross Yield and Net Yield are also measures of property returns, they usually incorporate different factors like potential rental income and expenses, which makes them distinct from the straightforward calculation defining the Capitalization Rate. Return on Investment (ROI) typically takes into consideration all returns over the investment period and includes factors such as appreciation, making it a broader, longer-term indicator compared to the immediate focus of the cap rate.