Convert NOI and Cap Rate Into Value
Calculate direct-cap value and explain how NOI and cap-rate changes move price.
A stabilized asset has $540,000 NOI. The base cap rate is 6.25%, but rollover risk may justify 6.75%. Direct capitalization estimates value by dividing stabilized NOI by an appropriate cap rate, then testing how the result changes when inputs move. The common trap is to argue about the final value without showing which input moved it. That hides whether the dispute is about income quality or market pricing. Direct cap sensitivity Base value NOI divided by base cap rate. Income sensitivity Change NOI while holding cap rate constant. Market sensitivity Change cap rate to reflect risk or market movement. $540,000…
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