What is the formula for capitalizing net operating income into value?

The formula for capitalizing net operating income (NOI) into value is based on the principle that as NOI increases, the value of the property should also increase, proportionate to the capitalization rate (R). The correct formula is derived from rearranging the capitalization formula, which states that Value equals the net operating income divided by the capitalization rate.

By using this formula, you derive the value of the property from the income it generates, adjusting for the risk and return expectations associated with that income. The capitalization rate serves as a measure reflecting the expected rate of return on the investment. Thus, when you divide the NOI by the capitalization rate, you arrive at the value of the property, effectively translating the expected income stream into a present value. This approach is widely used in real estate to determine investment worth based on income generation potential.