What does an appraiser require to calculate capitalization rate?

To calculate the capitalization rate, an appraiser needs both the value of the property and its net income. The capitalization rate is a financial metric used to evaluate the attractiveness of an investment property and is derived by dividing the net operating income (NOI) by the property value. The net income reflects the cash flow generated by the property after operating expenses are deducted, while the value is the property’s current worth in the market.

Having these two key pieces of information allows the appraiser to determine how much return an investor can expect on their investment. The capitalization rate serves as an important indicator for potential buyers and investors to assess whether a particular property meets their investment criteria. Therefore, this combination of value and net income is essential for accurately calculating the capitalization rate.