Understanding Cap Rate is a Must! The Cap Rate is computed by taking the rental net operating income (NOI) and dividing it by the property's Fair Market Value (FMV).
Property has an NOI of $100,000 with a FMV of 10%. $100,000 divided by .10 equals $1,000,000
The more risk in the market dictates a higher cap rate.
Less risk in the market dictates a lower cap rate.
Jul 6, 2014