What does the formula NOI ÷ V = R calculate?

The formula NOI ÷ V = R is used in real estate to calculate the capitalization rate (R). In this formula, NOI stands for Net Operating Income, which is the income generated from a property after deducting operating expenses, and V represents the market value of the property. By dividing the Net Operating Income by the market value, the result is the capitalization rate, which reflects the expected rate of return on an investment property. This rate is a crucial metric for investors and appraisers, as it helps evaluate the profitability and risk associated with property investments. Understanding how to derive the capitalization rate enables individuals to make informed decisions regarding property purchases and investments.