Why does growth get subtracted from the discount rate to get cap rate?

I am having trouble understanding why growth gets deducted from the discount rate and that equals the cap rate

107 WSO Academy Real Estate Session Reviews: 4.91/5

Class of '29 Sep 2026 Cohort

5.00/5

Real Estate Career Roadmap (optional)

“Nick was extremely informative and gave me a lot of solid and practical advice. He answered all of my questions clearly and thoughtfully. I really appreciated that he gave me an actionable plan for how to approach recruiting and developing my career in general. He was very open about sharing his own experiences. He also gave me helpful perspective on how to differentiate myself during the recruiting process and make my conversations with professionals more meaningful. I feel like I have a clearer understanding of what I should focus on and concrete next steps. This was overall a helpful and valuable conversation. ”

Class of '28 Aug 2026 Cohort

5.00/5

Real Estate Mock Interview

“Nick was fantastic. He didn’t just glance at my resume and give me generic advice—he explained exactly why it wasn’t telling the story I wanted it to tell, then helped me figure out how to fix it. He pushed me to be more intentional about how I talk about my experience and gave me concrete steps to prepare for interviews, from tailoring my resume to practicing financial modeling. I also appreciated how candid he was. When I asked about real estate capital markets versus sales and trading, he gave me his honest opinion while being clear about his own perspective. He shared interview guides, answered all my questions, and offered to do a more detailed mock interview if I move forward with JLL. I left with a lot of work to do, but also a much clearer idea of how to do it. I’d absolutely recommend talking with Nick.”

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+30	Is RE cooked for the medium term? Feels like it	5	15h
+24	Thoughts on institutional RE investment advisory roles — between the LP and GP?	5	2d
+22	Untrended YoC - Construction Escalation Included?	11	20h
+22	New to real estate - how to start?	6	1d
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+16	LIHTC Developer Comp	3	5d
+12	The Capital Bifurcation: Private GPs are handing the keys back to Public REITs	3	1d
+7	Harrison Street	5	1d
+6	Connecting with Real Estate Developers and Project Finance Professionals	1	21h
+3	MORGAN STANLEY REAL ESTATE INVESTING OFFCYCLE	2	6d

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Why does growth get subtracted from the discount rate to get cap rate?

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Elite Career Bootcamp. Top Job Offer Guaranteed.

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Why does growth get subtracted from the discount rate to get cap rate?

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