What is a cap rate?
A cap rate is a property's net operating income divided by its price or value, expressed as a percentage: a quick measure of unlevered yield.
Cap rate = net operating income (NOI) ÷ price (or value). A property with $1,000,000 of NOI priced at $20,000,000 trades at a 5% cap rate. It is the shorthand the market uses to talk about pricing without getting into financing.
A lower cap rate means a higher price for each dollar of income, which usually signals a lower-risk asset or market; a higher cap rate means a cheaper price per dollar of income and typically more perceived risk. Because it ignores debt, the cap rate is about the property, not the buyer's financing.
Why it matters
Cap rate is the headline pricing number buyers scan first. It frames whether a deal looks aggressively or conservatively priced before anyone opens the model.
Where it shows up in your OM
The cap rate appears in the OM's financial summary. omgen derives or displays it from the NOI and pricing you provide and labels it by source, so you confirm the figure before export. omgen never invents a number.
Frequently asked questions
- How is cap rate calculated?
- Divide the property's annual net operating income (NOI) by its purchase price or value. For example, $1,000,000 NOI on a $20,000,000 price is a 5% cap rate.
- What is a good cap rate?
- It depends on the asset type, market, and risk. Stabilized assets in strong markets trade at lower cap rates; higher-risk or value-add deals carry higher ones. A cap rate is only meaningful next to comparable properties.
Draft an OM from an address.
Drop in a property address and see the first pass. No card, no designer, no blank page.