Property Value Valuation Tool
Determine fair market value of any investment property using the income capitalization approach. See how NOI and Cap Rate impact your property valuation.
The total annual income remaining after all operating expenses are paid.
The typical yield for similar properties in your specific market area.
Valuation Tip: The Cap Rate represents the market's required yield. A lower Cap Rate results in a higher property value, reflecting lower perceived risk or higher demand for the asset.
The Income Capitalization Approach
The Income Capitalization Approach is the industry standard for valuing commercial and investment real estate. By treating the property's income stream as the primary driver of value, investors can determine a fair purchase price based on local market yields (Cap Rates). Our calculator applies the core formula: Value = NOI / Cap Rate. This method is particularly effective for multifamily, office, retail, and industrial assets where the objective is to generate consistent cash flow. Understanding this relationship allows you to see how even small improvements in NOI can lead to significant increases in total asset value.
Valuation Examples by NOI & Yield
The most effective way to increase property value is through NOI expansion. Because value is a multiple of income, every dollar you save in operating expenses or gain in additional rent is multiplied by the inverse of the cap rate. In a 5% cap rate market, every $1.00 increase in NOI adds $20.00 to your property value. This is the essence of the 'Value-Add' investment strategy.
| Annual NOI | Market Cap Rate | Estimated Value | Asset Profile |
|---|---|---|---|
| $50,000 | 5.0% | $1,000,000 | Class A Multifamily |
| $150,000 | 6.5% | $2,307,692 | Class B Office |
| $250,000 | 8.0% | $3,125,000 | Class C Industrial |
| $500,000 | 4.5% | $11,111,111 | Institutional Grade |
Maximizing Your Property's Exit Value
The most effective way to increase property value is through NOI expansion. Because value is a multiple of income, every dollar you save in operating expenses or gain in additional rent is multiplied by the inverse of the cap rate. In a 5% cap rate market, every $1.00 increase in NOI adds $20.00 to your property value. This is the essence of the 'Value-Add' investment strategy.
How to Use
- 1
Determine the Accurate NOI
Start with a rock-solid Net Operating Income. Ensure you have accounted for all operating expenses, including taxes, insurance, and management fees. If you don't have this number yet, use our NOI Calculator to derive it first.
- 2
Identify the Market Cap Rate
Research 'comps' in your local market. Look for recent sales of similar properties to determine what Cap Rate investors are currently accepting. Factors like property class (A, B, or C), location, and tenant quality will heavily influence this rate.
- 3
Execute the Capitalization
Divide the NOI by the Cap Rate. The resulting figure is the estimated market value. This gives you a baseline for negotiations, helping you identify whether a listing is overpriced or represents a significant 'value-add' opportunity.
Frequently Asked Questions
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NOI Calculator
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