In real estate investment analysis, cap rate (short for capitalization rate) equals the ratio of net operating income to the property value. Cap rates from comparable properties are used to discount the net operating income of a property to arrive at its intrinsic value. The terminal capitalization rate is the rate used to estimate the resale value of a property at the end of the holding period. The expected net operating income (NOI) per year is divided by the terminal cap rate (expressed as a percentage) to get the terminal value. Here’s an example: A building sells for $200,000. Its net operating income is $20,000. Applying the formula, you divide $20,000 by $200,000, which looks like $20,000 ÷$200,000 = 0.10 or 10 percent. Capitalization rates are expressed in percentages.