All real estate appraisers use the Income Capitalization Approach when it comes to valuing commercial income-producing real estate. This approach determines the Net Operating Income (NOI) of an investment property and divides that number by the capitalization rate or “CAP Rate.” (NOI ÷ Rate = Value). That’s called the “IRV” formula where “I” means NOI, “R” means CAP Rate and “V” equals value. Think of the “CAP Rate” as the return an investor expects to achieve based on the risk they are willing to take. The higher the risk, the higher the CAP Rate. For example, Walgreens does not own…
