How to read this result
In the default example, effective gross income is $1,187,500.00. 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
Apply the vacancy allowance to potential rent and other income. Deduct annual operating expenses for multifamily NOI, then capitalize that NOI using the selected rate.
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
- Annual gross potential rent (USD/year)
- Scheduled rent. Minimum: 0.
- Annual other income (USD/year)
- Parking, laundry and ancillary income. Minimum: 0.
- Vacancy rate (%)
- Vacancy/credit loss. Minimum: 0. Maximum: 100.
- Annual operating expenses (USD/year)
- Property operating expenses. Minimum: 0.
- Cap rate (%)
- User-entered market cap rate. 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 |
|---|---|
| Annual gross potential rent | $1,200,000.00 |
| Annual other income | $50,000.00 |
| Vacancy rate | 5.00% |
| Annual operating expenses | $450,000.00 |
| Cap rate | 5.50% |
| Item | Default scenario |
|---|---|
| Effective gross income | $1,187,500.00 |
| NOI | $737,500.00 |
| Indicated value | $13,409,090.91 |
Assumptions and limitations
Direct-capitalization estimate only; unit mix, reserves, market rents and cap rate selection require property-specific analysis.
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
This simplified model applies vacancy to the combined income amount. Review concessions, collections and ancillary income separately before consolidating them into that assumption.
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
Does unit count directly determine the value?
Not in this model. Unit-level assumptions are consolidated into annual rent, other income and expenses. Value follows modeled NOI and cap rate.
Can one cap rate be used for any apartment building?
No. The calculator accepts a user assumption; it does not identify the market rate for a specific building or location.