Real Estate Investment 

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Real Estate Investment


Cap Rate

The cap rate is a number used to represent the current value of future earnings.  It is derived by dividing the Net Operating Income (gross income minus operational expenses but not income taxes, interest, or capital expenditures that provide long-term benefits.) by the Market Value and multiplying by one hundred.

Cap Rate=(NOI/MV)*100

The Net Income Multiplier is another financial measure often used.  It is simply the inverse of the Cap Rate.  

Cap Rate=100/NIM and NIM=100/Cap Rate.

The direct formula for the Net Income Multiplier is the Market Value divided by the Net Operating Income, which is basically the inverse of the Cap Rate formula.  (Notice, though, that we do not multiply by a hundred when calculating the NIM.)

NIM=MV/NOI

Not all owners/brokers will be able to provide these numbers.  When they are unavailable, they will have to be determined by use of comparables.  

by: Wade Ogletree, Realtor®
COLDWELL BANKER, JME REALTY

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Wade Ogletree, Associate Broker, Century-21, Professional Services
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