Cap rate (capitalization rate)
Cap rate is net operating income divided by property value. It is the unlevered yield a property throws off, and it is how the market prices real estate income.
Formula
Cap Rate = Net Operating Income / Property ValueRearranged, value equals NOI divided by cap rate, which is how appraisers and lenders size a property from its income. A lower cap rate implies a higher price for the same NOI, and usually a lower-risk or higher-growth asset.
Why it matters
Cap rate ties NOI to value, and value drives LTV. In underwriting, the cap rate you apply to a stabilized or stressed NOI sets the valuation the whole deal rests on, so it deserves scrutiny.
How vishwa.ai uses cap rate
vishwa.ai computes NOI from the rent roll and operating statement, applies the cap rate from your underwriting standards, and carries the resulting value through to LTV and loan sizing, with every input traceable to its source.
See also: NOI, LTV, debt yield.
