How do NOI and cap rate affect the value of a property?

Value equals NOI divided by the cap rate. Raise NOI and value rises in proportion. Lower the cap rate, which is what happens when buyers accept less yield, and value rises too. $18,270 of NOI is worth $281,077 at a 6.5% cap rate, $365,400 at 5% and $228,375 at 8%.

The division is why small operating changes matter so much. At 6.5%, every $1,000 of annual NOI is worth $15,385. A $50 a month rent increase adds about $467 of NOI after vacancy and percentage expenses, which is roughly $7,200 of value. A $600 insurance saving is worth about $9,200.

The cap rate comes from the market, not from the property. It is what recent sales of similar property imply buyers will pay for a dollar of NOI. The owner controls NOI. The market controls the cap rate. Value is the two together.