VALUATION GUIDE

How to Select an Exit Cap Rate

The exit cap rate converts forward NOI at the end of a hold into terminal property value.

What the analysis measures

Apply the exit cap to the first full year of NOI after the sale date unless the model convention states otherwise. Deduct selling costs separately.

Consider the future age, lease profile, capital needs, location and interest-rate environment of the asset rather than copying the entry cap rate.

A lower exit cap increases terminal value and often dominates IRR. Show sensitivity and avoid relying on cap-rate compression for the base case.

Reconcile terminal value with a buyer’s likely yield and financing capacity. A mathematically high value may not be financeable or market-supported.

CLEAR ANSWERS

What does “How to Select an Exit Cap Rate” explain?

The exit cap rate converts forward NOI at the end of a hold into terminal property value.

Which assumptions matter most?

Review the inputs connected to exit cap rate, terminal value, DCF assumption and test them together rather than one at a time.

Should I use a calculator or a full model?

Use a calculator for a fast screening result and a full model when timing, financing, operating detail and sensitivities affect the decision.

Can this guide replace professional advice?

It is educational and does not replace deal-specific investment, accounting, tax, legal or lending advice.

Are the linked tools free?

All calculators and guides are free. Full Excel models are priced individually and as a complete library.