The cap rate is the net operating income divided by the purchase price of the property. Similarly, if you are trying to determine a potential sale price, you can divide the net operating income by a cap rate (determined by the cap rate of recent sales comparables).
Keep in mind that people arrive at net operating income in many different ways, which can skew the true cap rate. Some underwrite using today's expenses with tomorrow's income; others use tomorrow's expenses with today's income; some do not include a management fee, reserves, vacancy factor, etc. These variables in net operating income can drastically change the cap rate. I would recommend underwriting to lender standards in order to get a true picture of what the cap rate will be.
Jun 26, 2015