The capitalization rate expresses a property's NOI as a percentage of its purchase price. It's used to compare properties independent of financing.
Cap Rate = (NOI ÷ Purchase Price) × 100
A higher cap rate indicates higher yield but often more risk (lower-demand market, older property). Primary markets like NYC and LA typically have 3.5–5% cap rates; secondary/tertiary markets can offer 6–9%+.
Inversely, you can use the market cap rate to estimate a property's value: Value = NOI ÷ Cap Rate.