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Capitalization Rate illustration

Real Estate · Valuation

Capitalization Rate

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Use cap rate to compare income yield across properties before financing effects.

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Interactive workbench

Market value yield

Net Operating IncomeProperty Value

A $50,000 NOI on a $1,000,000 value implies a 5% cap rate.

Step 1 of 3

Variables and units

  • Net Operating Income

    Income after operating expenses.

    currency

  • Property Value

    Current or estimated property value.

    currency

Common mistakes

  • Including mortgage payments in NOI.
  • Mixing monthly income with annual value assumptions.

Step-by-step example

Market value yield

  1. 1. Start with the example inputs

    • Net Operating Income$50,000
    • Property Value$1,000,000

  2. 2. Apply the formula

    Net Operating IncomeProperty Value

  3. 3. Run the numbers

    5%

    A $50,000 NOI on a $1,000,000 value implies a 5% cap rate.

What this result means

A cap rate of 5% is the annual income yield the property produces before financing. Higher cap rates usually signal more income for the price — and often more risk or weaker locations — while lower cap rates accompany stable, in-demand assets. Compare it against recent sales of similar properties in the same market rather than a universal target.