Cap Rate is calculated as?

Cap Rate is calculated as?

• A. Cap Rate = NOI / Property Value
• B. Cap Rate = Property Value / NOI
• C. Cap Rate = NOI / Purchase Price
• D. Cap Rate = Gross Income / Property Value

Answer: (A)

The cap rate is a quick measure of the property's annual return relative to its value. It uses Net Operating Income, which is all income from the property minus operating expenses (excluding debt service and taxes), divided by the property's current market value. Cap rate = NOI / Property Value. This denominator represents how much you’d pay to own the property, so the result shows the yield you’d earn on the value of the asset, independent of financing. Using gross income would ignore operating costs, and while purchase price can be used in deal analysis, the standard definition uses the property’s current value to reflect the true yield at market price.

The cap rate is a quick measure of the property's annual return relative to its value. It uses Net Operating Income, which is all income from the property minus operating expenses (excluding debt service and taxes), divided by the property's current market value. Cap rate = NOI / Property Value. This denominator represents how much you’d pay to own the property, so the result shows the yield you’d earn on the value of the asset, independent of financing. Using gross income would ignore operating costs, and while purchase price can be used in deal analysis, the standard definition uses the property’s current value to reflect the true yield at market price.