whats a good cap rate for rental property
This same cap rate formula can be used to estimate the building's value based on its NOI. If you know that the property generates $500,000 in NOI, and that the appropriate cap rate (i.e. unlevered return) is 5% for a comparable project in the market, then you can divide $500,000 by 5 to get a $10 million value. The same project could be worth only $8.3 million if the market cap rate is 6%. This illustrates how changing return expectations in the market (in this instance, the cap rate), can cause implied real property values to fluctuate as discussed further below.
