Going-in cap rate (NOI basis)
Direct NOI ÷ price without rebuilding rent and expenses—pairs well with your expense-ratio cap tool when visitors already have NOI.
Example scenario
An investor underwrites a stabilized garden-style apartment trade where trailing-twelve-month net operating income—effective gross income minus normalized operating expenses before debt service and capex reserves—prints $52,800 (“Annual NOI”). The negotiated contract purchase price net of seller credits but inclusive of assumed deposits lands at $685,000 (“Purchase price”). Going-in capitalization rate resolves near 7.71%, implying roughly $12.97 of purchase price per dollar of NOI—inverse-multiple shorthand brokers quote alongside debt sizing—still exclusive of closing costs capitalized into basis unless manually folded into price.
Going-in cap rate (NOI basis)
NOI ÷ acquisition price
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How to derive going-in cap rate from NOI
- Compile annualized NOI from rent rolls minus normalized operating expenses—exclude mortgage principal, interest, sponsor asset-management fees above NOI line, and below-the-line capex unless underwriting policy moves reserves upward.
- Enter contract purchase price consistent with PSA economics—add anticipated closing allocations when your IC defines basis that way.
- Divide to read “Cap rate” as NOI yield on untrended dollars—cross-check “Price per $1 NOI” multiple against broker OM comps.
- Layer debt quotes afterward—cap rate answers unlevered yield; cash-on-cash differs materially once leverage and amortization enter.
Market-rate context for going-in cap yields
- Why brokers bundle market caps by asset class and geography
- Gateway multifamily quotes swing materially versus tertiary retail strips—triangulate sale comps before debating whether 7.7% is cheap or rich
- Difference between economic basis and contract price
- Transfer taxes, FF&E allocations, and TI packages allocated to basis shift denominator dollars—align definition with how your lender credits equity
- Stabilized NOI versus year-one value-add bleed
- Pro forma bumps inflate numerator timing—pair headline cap with sensitivity tables when lease-up risk spans quarters
Best use cases
- Growth and performance planning
- Budget and forecast scenario modeling
- Client-facing pre-qualification and education
Frequently asked questions
Should NOI include replacement reserves common area deductions?
Follow lender and appraisal conventions for your asset class—some buyers capitalize reserves below NOI while agency lenders quote above-line reserves—mixed treatment swings apparent yield.
Why might my appraisal cap differ from this headline?
Appraisers may normalize expenses, haircut rents, or pick trailing periods unlike your T-12 export—reconcile definitions before arguing valuation deltas.
Does purchase price include buyer acquisition fees?
Only if equity memo capitalizes diligence and commissions into invested basis—pure contract price keeps diligence additive unless modeled explicitly.
Can I use forward-year NOI for cap analysis?
Yes but label it pro forma yield-on-cost—going-in cap traditionally references stabilized trailing NOI unless IC approved forward underwriting.
Glossary
Scenario modeling
Comparing multiple assumption sets to estimate potential outcomes before execution.
Conversion intent
User behavior that indicates readiness to take a commercial action such as signup or purchase.
Related calculators
Category: Income-property underwriting & CRE valuationTopics: Going-in cap rate, NOI yield, Acquisition underwriting
Last reviewed: 2026-05-07
Reviewed by: Calclet Growth Team