What is the formula to calculate recapture rate?

The recapture rate is a crucial calculation in real estate and investment analysis used to determine the rate at which an investor can recover the costs or investment in a property over time. The formula for calculating the recapture rate is based on the concept of the Real Estate Loss (REL), which reflects the relationship between cash flow and the investment made.

When you use the formula 1 divided by the Real Estate Loss (REL), you are essentially determining the percentage of the total investment that will be recovered annually based on the cash flows generated from that investment. A lower REL, which indicates higher cash flows relative to investment, results in a higher recapture rate, meaning the investor recoups their investment more quickly.

This relationship emphasizes the efficiency of the real estate as an income-generating asset. It directly impacts investment decisions, as investors want to maximize their recapture rate to ensure sound investment returns.