The direct answer
The going-in cap rate measures current or initial stabilized NOI relative to purchase price or value, while the exit cap rate is an assumed capitalization rate applied to future NOI to estimate resale value. They serve different points in the holding-period model and should not be treated as automatically equal.
Anchor each rate to a different point in time
The going-in rate describes the acquisition snapshot. The exit rate belongs to the modeled sale date and should reflect assumptions about future market conditions, asset age, lease profile and risk.
To apply the approach to an editable scenario, use the Cap Rate Calculator. For the neighboring question, explore Commercial Property Valuation Calculator.
Keep the income basis consistent
If the entry cap rate uses stabilized NOI, the exit valuation should use a clearly defined future NOI that matches the capitalization convention. Mixing trailing, forward and stabilized income can distort the comparison.
Stress the exit assumption
Small changes in the exit cap rate can materially change terminal value. Run sensitivity cases rather than presenting one resale value as a forecast.
Worked example
A property bought for $5,000,000 with $300,000 of stabilized NOI has a 6.0% going-in cap rate. If year-5 NOI is modeled at $360,000 and the assumed exit cap rate is 6.5%, the indicated terminal value is about $5.54 million before selling costs.
Common mistakes and limitations
Do not assume the exit cap rate must equal the entry cap rate or use a lower exit cap rate solely to improve projected returns.
Cap rate depends on the quality and stabilization of the NOI assumption and does not by itself measure leveraged investor return.
Frequently asked questions
Can the exit cap rate be higher than the going-in cap rate?
Yes. Analysts often test higher, equal and lower exit-rate scenarios depending on market and asset assumptions.
Does exit cap rate predict the actual sale price?
No. It is a valuation assumption used in a model, not a guaranteed future market outcome.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- 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.
Read our editorial policy for the scope of these educational methods.