Price to Earnings Ratio (P/E)

Dividing a company's share price by its earnings per share gives the price to earnings ratio. Its real estate equivalent is price divided by NOI, which is simply one over the cap rate. A 5.78% cap rate is a price of about 17.3 times NOI.

Thinking in multiples helps when cap rates are low. Going from a 5% to a 4% cap rate sounds small, but it takes the multiple from 20 to 25 times NOI, a 25% jump in price for the same income. Small changes in the cap rate make large changes in value.

Commercial brokers sometimes quote price per dollar of NOI for this reason. The gross rent multiplier is the same idea applied to gross rent instead of net income, which makes it quicker but less precise.