The capitalization rate (or cap rate) is a metric used to measure the rate of return on a real estate investment property based on the expected income that the property will generate. It is calculated by dividing the net operating income (NOI) by the purchase price of the property. The internal rate of return (IRR) is a metric used to measure the rate of return on an investment over its entire lifespan. It is calculated by taking into account the time value of money and is often used by investors that have sensitivity to velocity of capital such as merchant builders.