Cap Rate

By Morgan Cole Updated March 19, 2022

Table of contents

What is Cap Rate?

Capitalization Rate, or Cap Rate for short, is the rate which your capital is returned after the first year.

The formula for cap rate is:

Net Operating Income / Purchase Price
= Cap Rate %

Using the value from the analysis on this page, the Cap rate is calculated as follows:

$19.938 / $355,510
= 5.6%

Using with NOI

When used in conjunction with NOI, cap rate can also be used to determine a property value. The formula to determine property value based on a know cap rate is as follows:

NOI / Cap Rate
= Property Value

Using the NOI of the property on this page, and an 8% cap rate, the market value is calculated as follows:

$19.938 / 8%
= $249,225

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