The Capitalization Rate or "Cap Rate" is calculated by taking the annual NOI (before debt service) and dividing it by the sale price. You can remember it by "IRV", where Income -:- Rate = Value (or price). You can calculate the Cap Rate applicable to you purchase price as follows: Income -:- Price (Value) = Rate. If you have the Price and the Cap Rate you can project the NOI as follows: Price (Value) x Rate = Income.
Jan 7, 2009