Cap rate, in one step.
Cap rate is how the market prices income-producing real estate. Enter the net operating income and the value or price to get the rate, then compare it to local sales to sanity-check value.
How cap rate prices a property
Cap rate is NOI divided by value. A property with $700,000 of NOI at a 7% cap rate is worth $10M. Run it the other way, dividing NOI by a market cap rate, and you get an implied value.
Small cap rate moves swing value hard: the same $700,000 NOI at 6% is worth about $11.7M. That sensitivity is why appraisal review scrutinizes where the cap rate came from.
What a lender does with it
Lenders treat the appraisal's cap rate as an input to check, not a given, asking whether the comparable sales actually compare and whether the rate reflects current market conditions.
Cap rate feeds value, and value feeds LTV, so an optimistic cap rate flows straight into leverage.
Questions lenders ask
- How do you calculate cap rate?
- Divide net operating income by the property's value or price. The tool above computes it and guards against a zero value input.
- What is a good cap rate?
- There is no universal answer; cap rates vary by property type, market, and asset quality. Lower cap rates mean higher relative value. Compare to recent comparable sales in the same market.
See your deals in real time.
Send us one live deal. We will build the room on your own checklist.