Interest Rate

An interest rate is the price of a loan, quoted as a yearly percentage of what is owed. It does not enter NOI. It does affect what the NOI is worth, because interest rates influence cap rates and decide whether a loan helps or hurts the owner's return.

At 7.25%, a $375,000 loan on the default house costs about $30,698 a year, more than the $28,892 of NOI. At lower rates the same loan would cost less and cash flow would improve, but NOI would stay exactly the same.

Rates and cap rates tend to move in the same direction over time, though not in lockstep. When borrowing costs rise, buyers often need higher cap rates to make deals work, and values fall for the same NOI. Raising NOI is one of the few ways an owner can offset that.