How to read this result
In the default example, indicated property value is $1,846,153.85. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Divide stabilized annual NOI by the cap rate expressed as a decimal. The reciprocal of the cap rate is the indicated value per dollar of annual NOI.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- Stabilized annual NOI (USD/year)
- Stabilized net operating income.
- Capitalization rate (%)
- User-entered market cap rate assumption. Minimum: 0.01. Maximum: 100.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Stabilized annual NOI | $120,000.00 |
| Capitalization rate | 6.50% |
| Item | Default scenario |
|---|---|
| Indicated property value | $1,846,153.85 |
| Value per $1 of NOI | 15.38x |
Assumptions and limitations
Direct-capitalization estimate only. Cap rate selection and stabilized NOI require market judgment; not an appraisal.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Do not capitalize gross revenue or after-debt cash flow as NOI. A selected cap rate should match the income basis and property assumptions.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Frequently asked questions
Why does a lower cap rate produce a higher value?
For the same positive NOI, dividing by a smaller positive rate gives a higher value. This mathematical sensitivity is not proof of the appropriate market rate.
Can I use a zero cap rate?
No. A zero rate is not a valid direct-capitalization denominator. The input must be positive.