The document explains the net operating income (NOI) to property value ratio, also known as the overall capitalization rate, which assesses property appreciation by comparing NOI to sale value. It details what factors are considered and ignored in this calculation, highlighting its sensitivity to current income, vacancies, and expenses. An example of the NOI/property value ratio over several years is provided, along with an invitation to utilize Planease's services through a free trial.

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Net Operating Income
(NOI)/Property Value Ratio
for commercial real estate
investments and developments

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Why is NOI/Property Value useful
for commercial real estate?
The NOI/Property Value ratio is also known as the overall
capitalization rate, which tests the assumption for the
appreciation of the property. The only difference between this
ratio and the Capitalization Rate shown on a planEASe
Income Statement is that the Cap Rate uses the original
purchase price, and the NOI/Property Value uses the sale value
at the end of the year that the NOI/Property Value ratio is
calculating.

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NOI/Property Value
Considers / Ignores
• Considers: Sale Value, Scheduled Income(Current Year Only),
Vacancies (Current Year Only), Expenses (Current Year Only)
• Ignores:Time Value of Money, Sale Proceeds, All Financing
(Loans), Other Years NOI, All Taxes
... and a lot of other things

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Sale Value
Scheduled Income(Current Year Only),
Vacancies (Current Year Only),
Expenses (Current Year Only)
What is the
NOI/Property Value
Sensitive to?

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NOI/Property Value Example
2012 Net Operating Income (NOI) $282,649
divide by the Price $3,800,275
equals the 2012 NOI/Property Value 7.44%
2010 2011 2012 2013 2014 2015
Total Gross Income $365,472 $372,443 $370,410 $376,040 $384,217 $414,321
Less: Vacancy & Credit Loss 19,084 3,202 14,620 5,049 3,501 50,321
Effective Income $346,387 $369,241 $355,790 $370,992 $380,717 $364,000
Total Operating Expenses $69,400 $71,244 $73,141 $75,094 $77,103 $79,170
Net Operating Income $276,987 $297,997 $282,649 $295,898 $303,614 $284,830
Sale Value $3,329,006 $3,591,128 $3,800,275 $3,698,723 $3,795,175 $3,560,371
NOI/Property Value 8.32% 8.30% 7.44% 8.00% 8.00% 8.00%

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Watch Video
about NOI/Property Value

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Try out this ratio yourself !!!
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