Stabilised value calculator
Capitalise stabilised net operating income at a net initial yield to estimate the gross and net value of an income-producing asset.
Investors value income-producing property by capitalising its income at a yield. This calculator does exactly that. Enter the stabilised net operating income, the net initial yield and, if you want a buyer-side figure, the purchaser’s costs. It returns the gross value and the net value after purchaser’s costs, updating as you type. It is the calculation behind the stabilised GDV a lender measures against and the value a stabilised scheme refinances on, so it underpins the other tools in this set.
- Net value (after costs)£0
- Purchaser’s costs£0
- Value per £1 of NOI£0
Indicative only. Not financial advice or an offer of finance.
The NOI divided by yield relationship
- Gross value = net operating income ÷ yield. Worked as a decimal: 500,000 pounds at 5 percent is 500,000 ÷ 0.05 = 10,000,000 pounds.
- Net value (after purchaser’s costs) = gross value ÷ (1 + purchaser’s costs). This reflects that a buyer’s total outlay, including stamp duty and fees, has to deliver the target yield.
- Value per £1 of NOI is the inverse of the yield, so a 5 percent yield values every pound of income at 20 pounds.
Net operating income is the rent the asset collects less the costs of running it, before finance costs. The yield is the relationship between that income and the price an investor will pay: lower yields produce higher values for the same income, and they reflect a prime location, a strong covenant or a tight market. Because value is income divided by yield, a small change in either input moves the figure significantly, which is why a stabilised, proven income on a keen yield is worth so much more than a partly let scheme. This stabilised value is the GDV the loan sizing calculator measures against, and the value that drives the stabilisation gap. For the finance behind it, see our investment term loans page.
Stabilised value: common questions
What is the formula to value commercial property on rental income?
Divide the net operating income by the net initial yield expressed as a decimal. Net operating income of 500,000 pounds at a 5 percent yield gives a gross value of 10 million pounds, because 500,000 divided by 0.05 is 10,000,000. This income-capitalisation approach is how investors value income-producing commercial property.
How can I value my commercial property?
For an income-producing asset, capitalise the net operating income at a market yield. Establish the annual net income the property produces after running costs, choose a net initial yield appropriate to the asset, the location and the covenant, and divide the income by the yield. For a formal figure a RICS valuer should be instructed, because the yield and the income both need careful judgement.
What are purchaser's costs and why do they matter?
Purchaser's costs are the costs a buyer pays on top of the price, such as stamp duty, agent and legal fees. A net or capital value is the gross value divided by one plus the purchaser's costs percentage, because the buyer's total outlay including those costs needs to deliver the target yield. Quoting net of purchaser's costs gives a more realistic figure for what a buyer would actually pay.
What does the yield tell you about value?
The yield, known in the United States as the cap rate or capitalisation rate, is the relationship between income and price. A lower yield or cap rate means a buyer will pay more for the same income, usually because the asset is prime, well-located or has a strong covenant. A higher yield means they pay less, reflecting more risk. Because value is income divided by yield, a small move in the yield moves the valuation significantly, which is why the figure here is an indicative estimate rather than a formal valuation.
Related calculators and finance
Valuing a stabilised scheme?
Send us the income and the yield and we will model the value and the debt it supports across our lender panel.