What this measures
Net operating income is rent you expect to collect after vacancy, minus operating expenses you count, and before the loan payment. This page does not build that NOI for you. You type the annual figure.
A higher cap rate means more NOI per dollar of price. It does not tell you the property is safer, and it does not tell you what you will earn after debt.
Formula
Cap rate = annual NOI ÷ price. If the price is zero or blank, the page shows no ratio.
NOI in this formula is whatever annual number you entered. Taxes, insurance, repairs, and management are inside it only if you already subtracted them before you typed it.
Example
Example
The sample price and NOI below are a check of the division. Cap rate is 7.00%. Annual NOI is $14,000. Price is $200,000.
Example. These inputs are numbers you can replace. They are not a property RE Underwrite Lab bought, sold, listed, or inspected.
Questions
Does cap rate include the mortgage?
No. Debt service stays out of cap rate. Use the cash-on-cash calculator if you want cash flow compared with cash invested.
Where does NOI come from?
You type it. This page does not pull rents or expenses from a listing site.
Is a higher cap rate always better?
No. The ratio only compares the two numbers you typed. It is not a risk score.
What if the price is zero?
The ratio is undefined. The page shows a dash instead of a percent.
Does this approve a purchase?
No. It divides two numbers. Verify income and expenses before you rely on them.