Investment Value

Investment value is what a property is worth to a specific investor given that investor's financing, taxes, required return and plans. It differs from market value, which is what a typical buyer would pay. Applying your own target cap rate to NOI gives a form of investment value.

The calculator's target cap rate does exactly this. At a 7% target, the example property's $28,892 of NOI is worth about $412,700 to you, even though the market may be paying $500,000 at 5.78%. The gap is the amount by which your return requirement exceeds the market's.

Buyers with lower costs of capital or plans to add value can justify paying more than others. If your investment value sits below the asking price, the right move is usually to offer at your number or pass, not to lower your target to make the deal work.