VALUATION GUIDE
How to Use Cap Rates in Property Valuation
A cap rate converts sustainable annual NOI into an indication of property value.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Divide NOI by value to observe a cap rate or divide NOI by a selected cap rate to estimate value. Use a decimal rate inside spreadsheet formulas.
Calculation framework
Match the NOI definition and period to comparable transactions. Forward NOI and trailing NOI can support different apparent rates.
Underwriting review
Adjust for asset quality, lease duration, location, growth, capex and liquidity through evidence rather than arbitrary basis-point changes.
How to use the result
Use cap-rate valuation as one method. Cross-check with DCF, replacement cost and transactions, especially when income is not stabilized.