Compare

Cap rate vs implied value

Published August 17, 2026

Cap rate is this year's net operating income divided by price. Implied value is that same income divided by a comparison cap. $36,000 of NOI on a $480,000 ask is a 7.50 percent cap, and at 6 percent the income is worth $600,000.

	Cap rate	Implied value
Formula	NOI / price.	NOI / comparison cap.
Teaching sheet	$36,000 / $480,000 = 7.50 percent.	$36,000 / 0.06 = $600,000. The ask sits $120,000 below.
A second building	$50,000 / $625,000 = 8 percent.	At 7 percent that income is worth $714,285.71, $89,285.71 above the ask.
When the comparison equals the own cap	Still 7.50 percent on the first property.	Implied value equals the $480,000 ask. The gap is 0. A restatement, not a finding.
What it is silent on	A comparison cap. 7.50 percent is a yield, not a $600,000 bid.	Whether 6 percent is the market's cap. The $600,000 is this income at the rate you typed.
Debt and tax	NOI is before the mortgage and before income tax.	So is $V$ . A levered bid is a different object.

One identity, two writings

A cap rate is this year's net operating income over price:

$\text{cap} = \frac{\text{NOI}}{\text{price}}$

On $36,000 of NOI and a $480,000 ask that is 7.50 percent. Rearranged, value is income over a comparison cap:

$V = \frac{\text{NOI}}{\text{cap}}$

At 6 percent the same $36,000 is worth $600,000. The ask sits $120,000 below that implied value.

How cap rates work owns the 7.50 percent. How implied cap value works owns the $600,000. The cap rate calculator is both routes. A yield family name is not a shared sheet with a stock's earnings yield.

The gap is only as good as the comparison cap

A second building with $50,000 of NOI at $625,000 is an 8 percent cap. At 7 percent that income is worth $714,285.71, so the price sits $89,285.71 below. Two buildings, two comparison rates, two gaps. Line them up only after the comparison cap is the same object.

When the comparison cap equals the property's own cap, implied value equals the asking price and the gap is 0. On the first sheet that is $480,000 at 7.50 percent. That is a restatement of the ask, not new information.

Which direction is cheap depends entirely on which cap is the market's. If similar buildings do not trade at 6 percent, the $600,000 is not a market value. This is educational material, not financial advice.

Worked examples

\$36,000 of NOI at a 6 percent comparison

NOI is $36,000 and the asking price is $480,000. What is the cap rate, and what is the same income worth at a 6 percent cap?

Cap rate: $36000 / 480000 = 0.075$ , which is 7.50 percent.
Value at 6 percent: $36000 / 0.06 = 600000$ , so $600,000.
The asking price sits $600000 - 480000 = 120000$ below that value.

The cap is 7.50 percent. Implied value at 6 percent is $600,000, so this $480,000 price sits $120,000 below that value.

\$50,000 of NOI at a 7 percent comparison

NOI is $50,000 and the price is $625,000. Cap rate, and implied value at 7 percent?

Cap: $50000 / 625000 = 0.08$ , 8 percent.
Value at 7 percent: $50000 / 0.07 = 714285.71$ , so $714,285.71.
The gap is $714285.71 - 625000 = 89285.71$ .

The cap is 8 percent. At 7 percent the same income is worth $714,285.71, $89,285.71 above this $625,000 price.

The identity at the property's own cap

On the first property, set the comparison cap to 7.50 percent, matching the cap the price already implies. What is the gap?

The cap on $36,000 over $480,000 is 7.50 percent.
Value at that same 7.50 percent: $36000 / 0.075 = 480000$ , so $480,000.
Gap: $480000 - 480000 = 0$ .

Implied value equals the $480,000 price, and the gap is 0. A comparison cap equal to the property's own 7.50 percent cap is a restatement of the asking price, not new information.

Common questions

Is a lower cap a higher implied value?

For a fixed NOI, yes. $36,000 at 6 percent is $600,000. At the property's own 7.50 percent it is the $480,000 ask. Cut the comparison cap and $V$ rises.

Does implied value include the mortgage?

No. NOI is before debt service. Price is the property. The loan sits outside both.

Which cap is the right comparison?

The cap similar buildings actually trade at, which this page does not know. Type the one your sheet is using. The $600,000 is this income at 6 percent, not a market print.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.