Real Estate
Value from a target cap rate
How buyers and appraisers turn income into a price.
The Formula
value = NOI / target cap rate
How buyers and appraisers turn income into a price.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| V | Value | currency | What the property is worth at that rate. |
| NOI | Net operating income | currency per year | The income being capitalised. |
| R_t | Target cap rate | decimal | The return the market demands, as a decimal. |
What Each Symbol Means
Vcurrency
Value
What the property is worth at that rate.
NOIcurrency per year
Net operating income
The income being capitalised.
R_tdecimal
Target cap rate
The return the market demands, as a decimal.
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.