Capitalisation rateCap rate

The income return a stabilised income-producing asset delivers, expressed as net operating income divided by value.

Formula

Cap rate = Stabilised NOI / Value

WhereOr rearranged: Value = NOI / Cap rate.

Why it matters

The cap rate is the market's price for income. It is the multiplier that converts NOI into a sale value, and it sets the value side of every income-asset feasibility. A development is worth building only if your yield on cost beats the prevailing cap rate by a sensible spread.

Worked example

A BTR project with stabilised NOI of $1,600,000 transacting at $35,500,000 reflects a cap rate of:

$1,600,000 / $35,500,000 = 4.5%.

Related terms

Connected ideas in the glossary.

Net operating income (NOI)Gross rent less operating expenses, before debt service.
Yield on costStabilised NOI divided by total development cost.
Stabilised valueValue of an income asset at steady-state occupancy.

See it in action

Use this term in a real feasibility.

Build-to-rent feasibility modelBTR-specific model with stabilised NOI, cap rate and yield on cost.
Build-to-rent worked exampleA BTR scheme from gross rent to stabilised value.
Build-to-rent feasibilityBTR-specific feasibility workflow.

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