Capitalization Rates
Capitalization-rate measures connecting property NOI with direct-capitalization value, acquisition price, current value, and modeled exit value.
Real estate yield measures for comparing property income with acquisition price, current value, terminal value, and equity invested.
Cap rates and property income yields relate rent or net operating income (NOI) to a price, value, acquisition cost, or equity base. The denominator and measurement date determine what each percentage means.
Capitalization Rates and OAR covers NOI-to-value measures used at acquisition, during ownership, in direct capitalization, and at a modeled exit. Property Income and Equity Yields covers gross rent, initial income, and cash flows attributable to equity.
| Question | Useful measure |
|---|---|
| How much gross rent is produced relative to price? | Gross rental yield |
| What income yield is available at acquisition? | Initial yield or going-in cap rate |
| What NOI yield does the property offer at its current value? | Current cap rate |
| What value is implied at the end of a DCF forecast? | Terminal cap rate |
| What cash return is attributable to invested equity? | Cash-on-cash return or equity yield rate |
Check whether income is gross or net, historical or forward, in-place or stabilized. Then identify whether the denominator is price, current market value, total acquisition cost, or equity invested. Also review vacancy, lease rollover, operating expenses, reserves, capital expenditures, purchaser’s costs, selling costs, and financing.
A yield is a compact summary, not a substitute for the rent roll, expense history, appraisal evidence, or multi-period cash-flow model. These pages provide educational explanations and do not provide appraisal, investment, tax, accounting, legal, or lending advice.
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Capitalization-rate measures connecting property NOI with direct-capitalization value, acquisition price, current value, and modeled exit value.
Property yield measures comparing rent, net income, acquisition cost, current value, and cash flows attributable to equity.