What real estate ratio is net operating income divided by property value?

The real estate ratio equal to net operating income divided by property value is the capitalization rate.

Often called the cap rate, it estimates an income property’s unlevered yield from its current operations: NOI ÷ property value. A building producing $100,000 in annual NOI and valued at $1 million has a 10% cap rate. In the income approach to appraisal, the formula can also be rearranged as property value = NOI ÷ cap rate.

NOI is operating income after ordinary property expenses, but before interest, mortgage principal, and depreciation. That makes cap rate different from cash-on-cash return, which reflects the investor’s equity and financing, and from a gross rent multiplier, which uses gross rent rather than net income.

Cap rates vary with location, property type, risk, expected growth, interest rates, and investor demand. A higher rate can indicate greater perceived risk or weaker growth expectations; it can also lower the price buyers are willing to pay for a given income stream.