While appreciation and cash flow are the headline returns, professionals price income property through the capitalization rate — the ratio of a property's Net Operating Income (NOI) to its purchase price. NOI is not the same as cash flow: it is rental income minus operating expenses, but before mortgage payments and capital expenditures.

Cap rate compresses an entire property into one number, letting investors compare a duplex in Ohio to an office in Texas on equal footing. A lower cap rate implies the market expects stronger growth or lower risk; a higher cap rate implies higher perceived risk or weaker growth.

NOI = Gross Rent − Vacancy Loss − Operating Expenses
Cap Rate = NOI ÷ Property Price
Value = NOI ÷ Cap Rate (rearranged)
Cap rates move inversely to prices: when cap rates compress, values rise even if NOI is flat

Scenario	NOI	Cap Rate	Implied Value
Class A apartment	$120,000	4.5%	$2,666,667
Class B apartment	$120,000	6.5%	$1,846,154
Class C apartment	$120,000	9.0%	$1,333,333