Cap Rate

The cap rate (capitalization rate) measures a property's unlevered annual return based on its income, calculated as Net Operating Income divided by purchase price (or current value). It's used to compare properties and estimate value independent of financing.

Example

$650,000 in NOI on a $10,000,000 purchase price is a 6.5% cap rate.

Formula

NOI ÷ Property Value = Cap Rate

Excel Formula:

• B8 = NOI
• B9 = Purchase Price