Estimate a capitalization rate by combining the cash flow requirements of debt and equity. Adjust the financing assumptions and required cash-on-cash return to compare scenarios.

Assumes a fixed-rate loan with monthly payments fully amortized over the entered amortization period. NOI is annual income after operating expenses and before debt service. The equity return is an annual cash-on-cash return, not an IRR or total investment return.

How the band of investment method works

The estimated cap rate equals the loan-to-value ratio multiplied by the annual mortgage constant, plus the equity share multiplied by the required annual cash-on-cash return. The mortgage constant includes principal and interest and equals annual debt service divided by the original loan amount.

Indicated property value equals annual net operating income divided by the estimated cap rate. Use realistic financing and return assumptions and compare results with similar property sales and market conditions.

For preliminary estimates and educational use only. Results depend on entered assumptions and do not establish a market cap rate or appraised value. This tool is not an appraisal, loan offer, or financial, tax, or legal advice. Verify assumptions and results with qualified professionals.

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