Cap rate, NOI & default assumptions

Cap rate is the most quoted — and most misquoted — number in real estate, because everyone computes NOI differently. This page pins down exactly what goes into REIzer's NOI, the cap-rate variants the analyzers report, and the default operating assumptions REIzer fills when you leave a field blank.

Net operating income (NOI)

NOI = Effective gross income − Operating expenses Effective gross income = Scheduled rent − Vacancy/credit loss + Other income Operating expenses = Taxes + Insurance + Maintenance + CapEx reserves + Management + Utilities/HOA (where applicable)

NOI is the property's core earning power before any mortgage. Debt never enters NOI — that's what makes cap rate comparable across buyers with different financing. Reserves (maintenance and capital expenditures) are included as operating expenses: an NOI computed with zero reserves overstates every downstream number.

Cap rate

Cap rate = NOI ÷ Purchase price

The unleveraged yield — what the property earns per dollar of price, independent of the loan. In scoring it's normalized over 0%–12%, with ≥8% treated as excellent and ≥5% as OK; what's "good" is heavily market-dependent, which is why REIzer scores it as one weighted input rather than a verdict on its own.

Variant	Definition	Used for
In-place cap rate	NOI on today's actual rents ÷ price	What you're really buying on day one (Multifamily)
Stabilized cap / value	Stabilized NOI ÷ exit cap rate = stabilized value	Value-add and new-construction underwriting
Exit cap rate	The cap rate a future buyer pays when you sell	Converts stabilized NOI into a sale value; the conservative dial — many investors set it above today's cap rate

Yield-on-cost and development spread

Yield-on-cost = Stabilized NOI ÷ Total all-in cost Development spread = Yield-on-cost − Market cap rate

The core value-add and new-construction signal: a positive spread means you're creating the asset cheaper than you could buy it already stabilized — that gap is the developer's profit. The conventional threshold to justify build risk is 100+ basis points; REIzer's scoring treats ≥150 bps as excellent.

Default operating assumptions

An analysis run on $0 insurance, $0 vacancy, and $0 reserves looks artificially strong and falls apart the moment real costs land. When you don't provide an operating input, REIzer fills a typical estimate rather than a zero — and always labels it as an estimate in the results so you know to replace it with your actuals:

Input	Default estimate
Insurance	≈ 0.6% of property value per year
Vacancy	5% of gross rent
Maintenance	5% of gross rent
CapEx reserves	5% of gross rent
Property management	8% of gross rent

These are national rules of thumb, not local truth — an older roof, a harsh climate, or a self-managed portfolio all move them. Any score computed on estimated inputs carries an explicit "some inputs are estimates" caveat, and REIzer never presents a score computed on zero income.