The formula to calculate the Cap Rate is:
\( \text{CR} = \frac{\text{NOI}}{\text{MV}} \times 100 \% \)
The Cap Rate (Capitalization Rate) is a measure used to evaluate the return on an investment property. It is calculated by dividing the property's Net Operating Income (NOI) by its Market Value (MV). The result is expressed as a percentage and represents the expected rate of return on the property.
If the Net Operating Income (NOI) is $50,000 and the Property Value (MV) is $500,000, the Cap Rate is calculated as follows:
Cap Rate \( = \frac{50{,}000}{500{,}000} \times 100 \% = 10 \% \)
If the Net Operating Income (NOI) is $30,000 and the Property Value (MV) is $200,000, the Cap Rate is calculated as follows:
Cap Rate \( = \frac{30{,}000}{200{,}000} \times 100 \% = 15 \% \)
