Formula card
Cap rate = NOI / value. Value = NOI / cap rate. NOI = effective gross income - operating expenses. Debt service is not an operating expense.
Worked example
A building grosses $120,000, with 5% vacancy and $38,000 of operating expenses. Investors expect a 7.6% cap rate.
- Effective gross income: $120,000 x 0.95 = $114,000
- NOI: $114,000 - $38,000 = $76,000
- Value: $76,000 / 0.076 = $1,000,000
Here is the trap
- Subtracting the mortgage. Principal and interest are financing, not operations.
- Direction. Higher cap rate = lower value for the same NOI.
- Monthly figures. Annualize before dividing.
Cap rate / value solver
Practice tool for exam-style math. Check your state and contract for local conventions.
Ready for the full bank?
National + your state, a timed simulator in your vendor’s format, and weakness tracking. 30 days $39 or 90 days $69, one-time.