Cap rate is a very useful ratio in the real estate industry that can be helpful in several scenarios. It often is used to size up an acquisition relative to other potential investment properties. A 4% cap rate acquisition versus a 10% cap rate acquisition for a similar property in a similar location should immediately tell you that one property has a higher risk premium than the other.
Another way cap rates can be helpful is when they form a trend. If you look at cap rate trends over the past few years in a particular sub market you can get an indication of where the market is headed. For instance, if cap rates are compressing that means values are being bid up and a market is heating up. Where are values likely to go next year? Looking at historical cap rate data can quickly give you insight into the direction of valuations.