NOI divided by value
Cap rate is unlevered net operating income divided by property value. NOI is rent and other operating income after vacancy and operating expenses, before debt service, income tax, and capital-expenditure reserves. Yield on the rental-yield page is scheduled rent over purchase cost; cap rate uses NOI instead of rent.
Cap rate = annual NOI ÷ property value
Implied value = annual NOI ÷ cap rate
Years of NOI to recover value = property value ÷ annual NOI
Implied value = annual NOI ÷ cap rate
Years of NOI to recover value = property value ÷ annual NOI
Example
$40,000 of NOI on a $500,000 property is an 8% cap rate. At that rate, $40,000 of NOI implies a $500,000 value. $60,000 of NOI on $1,000,000 is 6%.
What cap rate leaves out
Mortgage interest, principal, depreciation, selling costs, and income tax are outside NOI here. Two properties with the same cap rate can still differ in leverage, capex, lease quality, and liquidity. A higher cap rate is not automatically a better buy.