How to Calculate Capitalization Rate

The capitalization rate, or cap rate, is a ratio used to estimate the value of income-producing properties. This section discusses how cap rates are calculated, how you can obtain an accurate, current cap rate and how you will use the cap rate n your brokerage business.

The cap rate is net operating income (NOI) of a commercial property divided by the sales price or value of the property and expressed as a percentage.

The NOI divided by Purchase Price = Cap Rate %

Investors, lenders, and appraisers use the cap rate to estimate the purchase price for different types of income-producing properties. So if you have the cap rate and the net operating income of a property, you can determine the property's true value or purchase price.

NOI divided by Cap Rate % = Purchase Price



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