# How to Calculate Capitalization Rate Actually, there are many version used to measure capitalization rate value. The most popular version to calculate capitalization rate of a property investment is measured by dividing net operating income (NOI) by the recent value of the property. Mathematically, the formula is shown below:

Capitalization Rate = Net Operating Income (NOI) / Current Market Value

What is Net Operating Income (NOI)? The value of net operating income (NOI) is generated by alleviating the expected annual income with all the cost spent in order to maintain the facility and the property building.  Not only expenses to do regular up keep to the facility around http://206.189.95.172 and inside the building property, but also the cost spent for paying taxes.

The (expected) annual income can be generated by renting the commercial building property to the tenants. If the tenants only rent the building for less than a year, than you have to sum up the monthly income you get until one year.

## The Formula

The current market value is the recent value of the building property in market rates which valid in the present day. You can also replace the current market value by using the acquisition expense of the building property or the original capital cost. This is shown in the formula below:

Capitalization Rate = Net Operating Income (NOI) / Purchase Price

The second version is the simplest way to calculate capitalization rate (Cap rate) since you don’t need to search the recent price of the property. You only need to calculate all the expense you have spent to do regular upkeep to the facility and the cost for paying the tax which then called as Net Operating Income (NOI). Then you only need to divide the NOI value with purchase price of the property.