1031 Exchange Real Estate Resources

Understanding Cap Rates by Market

General Property Education

Compare the property, not just the headline rate

A cap rate is a quick way to compare income-producing properties. It connects a property’s net operating income, or NOI, to its price.

In Bergen County, the number can vary by town, property type, condition, rent roll, and operating costs. This article is general property information only.

In This Guide

Three ways to read a cap rate

Know the inputs

Check income, vacancy, and operating expenses.

Compare like with like

Compare similar property types and lease situations.

Verify the timing

Use current rent rolls, expense records, and market information.

What is a cap rate?

A cap rate shows the relationship between a property’s NOI and its value or purchase price. NOI is the income left after operating expenses, before mortgage payments.

A cap rate is not a full return calculation. It does not show loan payments, future rent changes, or a future sale value.

Cap rate formula property income guide
A cap rate is a starting point. Review the income and expense records behind both inputs.

Why cap rates can differ across Bergen County

Bergen County is not one uniform market. Location, building type, tenant mix, condition, and operating costs can change the income pattern of a property.

Two properties with similar rents can show different cap rates when their expenses are different. Broader market reports can provide context but do not replace a review of the local property.

What to compare before using a cap rate

Start with the rent roll, occupancy, lease terms, and operating expenses. Use current records where available instead of relying only on a listing summary.

Then compare similar buildings. A mixed-use building may need a different review from a residential rental because the commercial space can have different renewal and operating needs.

Property review records and income guide
Use the same categories for each property you compare.

Sources

Sources for further verification

Use current primary and institutional sources when reviewing a specific property.

  1. National Association of REALTORS®: Commercial Real Estate Metro Market Dashboard
  2. Fannie Mae Multifamily Guide: Underwriting

Frequently Asked Questions

A cap rate is NOI divided by a property’s value or price.

No. A cap rate does not include loan payments, future rent changes, or a future sale price.

Review the rent roll, operating expenses, tax information, insurance costs, lease details, and recent property records.

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Tax Advice Disclaimer

The information in this article does not constitute tax advice. Consult a qualified tax professional about your specific circumstances.