Work out income approach valuation instantly with clear inputs, formula shown and shareable results.
Direct capitalisation values an income property as net operating income divided by the market capitalisation rate. Gross rent is first reduced for vacancy and credit loss to give effective gross income, then operating expenses are deducted. Because value is NOI divided by cap rate, a one point move in the cap rate changes value by more than ten percent.
Net operating income
NOI = gross rent x (1 - vacancy) - operating expenses
Direct capitalisation
Value = NOI / capitalisation rate
NOI = gross rent x (1 - vacancy) - operating expenses. Direct capitalisation values an income property as net operating income divided by the market capitalisation rate.
No. NOI is deliberately independent of how the property is financed, so mortgage payments, income tax and capital expenditure are all excluded.
This calculator takes 4 inputs: Annual gross rental income, Vacancy and credit loss, Operating expenses, Capitalisation rate. The pre-filled defaults are a realistic worked example — replace them with your own site or project figures.