NOI = gross income minus operating expenses, before debt service and capital expenditures. Verify NOI from actuals, not pro forma — that discipline is half of underwriting.
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What a Cap Rate Does — and Doesn’t — Tell You
Cap rate is the market’s shorthand for the relationship between a property’s income and its price: annual NOI divided by value. It’s the fastest way to compare assets and the slowest way to fully understand one. Two properties at the same cap rate can be radically different investments once you look at lease term, tenant credit, deferred maintenance, and the re-leasing picture if the income leaves.
The sensitivity table above makes the leverage visible: on a stabilized asset, a half-point of cap rate movement shifts value by several percent — which is why disciplined buyers underwrite the durability of the NOI before they argue about the rate. It’s also why sellers who document their income cleanly command tighter cap rates than sellers who make buyers guess.
Cap rates in Texas vary meaningfully by asset class, tenant credit, and metro — a corporate-guaranteed NNN asset, a multi-tenant strip center, and a vacant-possession industrial building do not trade in the same band. For a read on what your specific asset or target would command in today’s market, a broker opinion of value beats any calculator.