What does the capitalization (cap) rate triangle help to determine in real estate?

The capitalization rate triangle is a valuable tool in real estate that specifically facilitates the calculation of Net Operating Income (NOI). This visual representation helps real estate professionals understand the relationship between the cap rate, the property's value, and its income-generating potential.

In the cap rate triangle, the cap rate itself is derived by dividing the NOI by the property's value (or sales price). This relationship emphasizes how NOI is essential for determining the profitability and investment quality of a real estate asset. By focusing on the NOI, investors can assess how much income a property generates after operating expenses are deducted, which is critical for evaluating investment opportunities.

In this context, knowing the NOI enables real estate professionals to make informed decisions about value and cap rates. While the other options mention aspects of real estate value or financial metrics, they do not capture the primary purpose of the cap rate triangle, which is clearly to illustrate and determine the Net Operating Income.