Real Estate
Cap rate
The unlevered annual return on the value of the property.
The Formula
cap rate = NOI / property value
The unlevered annual return on the value of the property.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| R | Cap rate | decimal | The annual unlevered return, as a decimal. |
| NOI | Net operating income | currency per year | Income after operating expenses, before debt. |
| V | Property value | currency | The current value or price. |
What Each Symbol Means
Rdecimal
Cap rate
The annual unlevered return, as a decimal.
NOIcurrency per year
Net operating income
Income after operating expenses, before debt.
Vcurrency
Property value
The current value or price.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate cap rate page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Cap Rate, filed under Finance. Every number the guide produces comes from substituting into this one line.