Cap Rate Toolkit, Direct Cap · Band of Investment · R = Y − g

Values a property by direct capitalization and builds a cap rate two more ways, from a band-of-investment blend of debt and equity and from the growth decomposition R = Y − g. Inputs are stabilized NOI, a market cap rate, the LTV, mortgage constant, and equity dividend rate for the band, and a required return and long-term NOI growth rate.

Interactive Tool

Direct capitalization

Stabilized NOI

Market cap rate

Value = NOI ÷ Cap

$10,000,000

Band of investment

Debt share (LTV)

Mortgage constant

Equity dividend rate

Indicated cap rate

7.72%

implies $6,472,492 on this NOI

Gordon Growth: R = Y − g

Required return (Y)

Long-term NOI growth (g)

Implied cap rate (R)

4.5%

implies $11,111,111 on this NOI

Value moves with the reciprocal of the cap rate, and a low cap rate can price strong expected growth (R = Y − g), not overpricing.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.