In the cap formula, what does 'I' represent?

In the capitalization rate (cap rate) formula, 'I' stands for Net Operating Income (NOI). This component is crucial in real estate valuation, as it represents the total income generated by the property after all operating expenses are deducted, but before financing and taxes are taken into account.

By taking NOI into account, investors can assess the property's cash flow potential and determine its value in relation to its asking price. The cap rate itself is calculated by dividing the Net Operating Income by the property's value or purchase price. This figure helps investors evaluate and compare the profitability of various real estate investments, enabling them to make more informed decisions. Since NOI is a direct measure of a property's income-generating ability, it plays a pivotal role in the cap rate formula, providing insight into the investment's performance.