How to Calculate Cap Rate (Purchase)

Cap Rate (Purchase) — Capitalization rate, or cap rate for short, is the ratio of NOI to property value. The lower the Cap Rate, the higher the property value, and the higher the Cap Rate the lower the property value, or the purchase price when buying. It’s used to compare different commercial properties excluding financing.

   Net Operating Income
÷ Purchase Price
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= Cap Rate (Purchase)

      $112,332
÷ $1,800,000
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= 6.24%