What cap rate should I use for valuation?

Use the prevailing market cap rate for comparable properties in your submarket and asset class. Multifamily prime urban: 3.5-5%. Suburban Class B/C: 5.5-7.5%. Retail: 5-8.5%. Office: 5-9%+. Industrial: 5-7%. Local brokers and recent comps are the best source.

Why does a small cap rate change cause such a large value swing?

Because cap rate is the divisor in the formula, value moves inversely and exponentially. A property with $100K NOI is worth $2M at a 5% cap rate but $1.67M at 6% — a 1-point cap rate move shifts value by 17%. This is why precise market cap rate selection matters more than precise NOI estimation.

Income Approach

Property Value Calculator

Estimate market value from operating income and a target cap rate. The fastest path from NOI to a defensible asking price.

Gross Annual Rental Income *

Vacancy Rate

Annual Operating Expenses *

Market Cap Rate * 5.00%

Estimated Property Value —

Net Operating Income: —
Effective Gross Income: —
Expense Ratio: —
Value per $1 NOI: —

Want to find the cap rate from a known price instead? Use the Cap Rate Calculator →

Frequently asked

Property valuation, plainly explained.

How is property value calculated from NOI and cap rate?

Property Value = NOI / Cap Rate

This is the income approach to valuation. A property with $100,000 in net operating income, valued at a 5% market cap rate, is worth $2,000,000. The same property at a 6% cap rate is worth ~$1,667,000.

It's the standard valuation method for income-producing commercial real estate — multifamily, retail, office, industrial.

What cap rate should I use?

Use the prevailing market cap rate for comparable properties in your submarket and asset class. Quick reference:

Multifamily, prime urban: 3.5–5%
Multifamily, Class B/C suburban: 5.5–7.5%
Retail (anchored): 6.5–8.5%
Single-tenant NNN: 5–7%
Industrial: 5–7%
Office (suburban): 7–9.5%

Local brokers, recent transaction comps, and CoStar/CompStak data are your best sources for an accurate market cap rate.

Why does a small cap rate change swing value so dramatically?

Because cap rate is the divisor in the formula, value moves inversely and non-linearly. A 1-percentage-point shift in cap rate produces dramatic swings in value:

$100K NOI at 5% = $2,000,000
$100K NOI at 6% = $1,666,667 (−17%)
$100K NOI at 4% = $2,500,000 (+25%)

This is why precise market cap rate selection matters more than chasing the last decimal of NOI accuracy. It's also why falling interest rate environments dramatically inflate property values — and rising rates do the opposite.

What's the difference between NOI and cash flow?

NOI is income after operating expenses but before debt service, capital expenditures, and taxes. Cash flow is what's left after all those.

Use NOI for valuation. Use cash flow for return-on-equity analysis.

What goes into operating expenses?

Property taxes
Insurance
Utilities (where landlord-paid)
Routine maintenance and repairs
Property management fees
Common area expenses
Reserves for replacement

Operating expenses do not include mortgage payments, depreciation, capital improvements, or income taxes.

How do market conditions affect property value?

Interest rates: Rising rates push cap rates up and values down
Local economy: Job growth and population trends drive demand
Supply pipeline: New construction can suppress rent growth
Capital flows: When institutional capital chases an asset class, cap rates compress
Tenant credit: Better tenants = lower cap rates = higher values