Overall Capitalization Rate (OAR)

Definition of Overall Capitalization Rate OAR


Overall Capitalization Rate (OAR) is often referred to as “CAP Rate”. It is a variable derived from dividing a property’s net operating income (NOI) by the property’s value. OAR/CAP rates are typically used in valuation practice, as a component of the income approach, to estimate property value by converting an estimate of a single year’s net operating income into an indication of value in one direct step. This step is accomplished by dividing the income estimate by the relevant/market derived OAR (NOI/OAR = Value).