A broker prices a property by taking the Net Operating Income (NOI), dividing it by the sales price, and voila!--there's the cap rate. Example: Say the property has an NOI of $125,000, and the price is $1,125,000.
http://www.creonline.com/cap-rate-formula.html
For example, if the investor is looking at an apartment building that is seeing a net operating income of $150,000.00 and he wants to see a CAP rate of 11%, he can determine the maximum purchase price as follows: $150,000.00 (Net Operating Income) / 11% (CAP Rate)
https://www.biggerpockets.com/renewsblog/2008/03/03/determining-the-value-of-an-apartment-building-investment-using-cap-rates/
Determining CAP Rate. The first unfamiliar term that a new apartment building buyer will encounter is the capitalization rate or CAP rate for short. As the new investor is searching for an apartment building, his Realtor will supply him the CAP rate of the property.
https://www.biggerpockets.com/renewsblog/2008/03/03/determining-the-value-of-an-apartment-building-investment-using-cap-rates/
Nor is it the value from a cap rate estimated in the market. It's the value at which YOU can attain YOUR investment goals, that is reflective of YOUR borrowing power, and gives you an intelligent starting point for the analysis.
http://www.creonline.com/cap-rate-formula.html
The CAP rate is a measure of the income produced by an apartment building divided by the cost of the building. For example: If an apartment building is purchased for the price of $1,000,000.00 and the property produced an annual net operating income of $100,000.00, the CAP rate of the property is 10%. (Net operating income is gross rents minus expenses.)
https://www.biggerpockets.com/renewsblog/2008/03/03/determining-the-value-of-an-apartment-building-investment-using-cap-rates/
What the cap rate above represents is merely the projected return for one year as if the property were bought with all cash. Not many of us buy property for all cash, so we have to break the deal down, usually by trial and error, to find the cash on cash return on our actual investment using leverage (debt).
http://www.creonline.com/cap-rate-formula.html
Saikiran, the value of a income property is its NOI divided by the cap rate. I would look up Sales Comps in a paricular zip code, check the financials, if given, to link the NOI and equate the cap rate. As a rule of thumb cap rates at present are 7% to 9%. May 31, 2011.
http://answers.loopnet.com/Question/how-do-i-find-cap-rates-for-a-specific-zip-codes-city_4912/
The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties. Put simply, the cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage.
http://answers.loopnet.com/Question/how-do-i-find-cap-rates-for-a-specific-zip-codes-city_4912/
This simple formula to devise the capitalization rate (CAP rate) of an apartment building is limited, however. The simple CAP rate assumes that the investor will be purchasing the property for cash and does not take into account the financing terms that will affect the investor’s rate of return on the building.
https://www.biggerpockets.com/renewsblog/2008/03/03/determining-the-value-of-an-apartment-building-investment-using-cap-rates/
In order to correctly calculate a cap rate, and get an apples to apples comparison, you must know the correct income and expenses for the property, and that the calculations of each were done in the same way explained below. This information is not part of any public record.
http://www.creonline.com/cap-rate-formula.html
how do you determine cap rate
The net operating income divided by the sales price or value of a property expressed as a percentage is determining the cap rate.