Cap Rate Equation is:

Cap Rate Equation is:

• A. Net Operating Income divided by the value
• B. Value divided by Net Operating Income
• C. NOI multiplied by value
• D. Cap rate equals NOI minus value

Answer: (A)

Cap rate measures the return on an investment property by comparing the income it generates to its value. It is calculated by dividing the net operating income by the property's value. Net operating income is the income left after operating expenses, excluding financing costs, taxes, and depreciation. The value used is the current market value or purchase price. This ratio helps compare properties: a higher cap rate indicates a higher return for the same NOI or the same price, often reflecting higher risk or a lower price. Inverting the ratio (value divided by NOI) would give a price-to-NOI multiple, not the cap rate; multiplying NOI by value isn’t a meaningful rate, and subtracting value from NOI yields a difference, not a rate. Therefore, the correct expression is NOI divided by value.

Cap rate measures the return on an investment property by comparing the income it generates to its value. It is calculated by dividing the net operating income by the property's value. Net operating income is the income left after operating expenses, excluding financing costs, taxes, and depreciation. The value used is the current market value or purchase price. This ratio helps compare properties: a higher cap rate indicates a higher return for the same NOI or the same price, often reflecting higher risk or a lower price. Inverting the ratio (value divided by NOI) would give a price-to-NOI multiple, not the cap rate; multiplying NOI by value isn’t a meaningful rate, and subtracting value from NOI yields a difference, not a rate. Therefore, the correct expression is NOI divided by value.