What if you could estimate a rental property’s value in minutes using only a few numbers? If you are exploring duplexes or fourplexes in Fort Lauderdale and greater Broward, cap rate is your quickest way to size up a deal. You want simple, reliable math that compares properties fairly and points you toward the right price. In this guide, you’ll learn what cap rate is, how to calculate it from NOI, what local costs to watch, and how to read real South Florida examples. Let’s dive in.
Cap rate in one line
Cap rate is the property’s unlevered return based on today’s income. The formula is simple: Cap rate = NOI ÷ Price. Rearranged, Value = NOI ÷ Cap rate. You use it to compare income properties when financing terms differ and to see how the market is pricing risk and return at a moment in time.
How to calculate NOI
Net Operating Income (NOI) is the annual income a property produces after vacancy and operating expenses, but before debt service, major capital projects, depreciation, and taxes.
- Start with Gross Potential Rent (GPR)
- Subtract Vacancy and Credit Loss
- Add Other Income (parking, laundry, pet fees)
- This gives you Effective Gross Income (EGI)
- Subtract Operating Expenses to get NOI
Operating expenses include property taxes, insurance, owner-paid utilities, repairs and maintenance, property management, landscaping, pest control, supplies, HOA or condo fees if any, accounting and legal, advertising, and reserves for replacements. Do not include mortgage payments or large one-time capital projects in NOI. Instead, set a reserves line.
Broward and Palm Beach cost realities
South Florida expenses can swing your NOI more than you expect. Plan for the following:
- Insurance: Premiums are among the highest in the country and have been volatile. Include property, wind, and flood as applicable.
- Flood and wind exposure: Review zone and elevation. Premiums, deductibles, and terms can materially affect expenses.
- Property taxes: Florida taxes vary by county and municipality and are based on assessed value. Use local property appraiser records for exact bills and millage.
- Utilities: Many small multifamily owners cover water, sewer, and garbage. Confirm tenant-paid versus owner-paid utilities.
- Maintenance and turnover: Humidity, termites, and corrosion drive higher upkeep. Budget realistic reserves for AC and roof or water intrusion work.
- Regulation: Florida does not have broad statewide municipal rent control. Local rules and short-term rental ordinances may affect operations, so verify before underwriting.
As a quick rule of thumb, small multifamily expense ratios often run about 30 to 50 percent of EGI, depending on age, condition, and who pays utilities.
Compare deals fairly with cap rate
To compare apples to apples, standardize your assumptions:
- Use stabilized NOI with market rents, normal vacancy, and consistent other income.
- Remove nonrecurring items like one-time repairs or legal costs from NOI.
- Apply the same vacancy rate, management fee, reserves, and owner-paid utility assumptions.
- Decide once whether reserves are inside operating expenses and keep it consistent across comps.
- Adjust for building age, size, systems, and relative risk such as hazard exposure or tenant profile.
Know cap rate’s limits
Cap rate is a single-period snapshot. It does not capture rent growth, expense inflation, or the impact of financing. It is sensitive to NOI accuracy, and it does not address liquidity, tax treatment, or deferred maintenance. Pair cap rate with price per unit, GRM, cash-on-cash return, DSCR, and IRR when you model the full picture.
Step-by-step examples
Below are illustrative examples for Fort Lauderdale and broader Broward. They demonstrate mechanics only. Always verify current rents, vacancy, taxes, and insurance before making decisions.
Example A: Duplex in Fort Lauderdale
- Unit rents: $2,200 and $2,000 per month
- Gross Potential Rent: (2,200 + 2,000) × 12 = $51,600
- Other income: $0
- Vacancy and credit loss: 6 percent
- EGI: $51,600 × 0.94 = $48,504
- Operating expenses: assume 35 percent of EGI = $16,976
- Example detail inside that 35 percent: property tax $4,200, insurance $3,600, maintenance $3,000, management 6 percent of EGI = $2,910, utilities and reserves $3,266
- NOI: $48,504 − $16,976 = $31,528
Implied price by cap rate:
- At 6.5 percent cap: Price = $31,528 ÷ 0.065 = $485,046
- At 5.5 percent cap: Price = $31,528 ÷ 0.055 = $573,236
- At 4.5 percent cap: Price = $31,528 ÷ 0.045 = $700,622
Example B: Fourplex
- Unit rents: four units at $1,500 per month
- Gross Potential Rent: $1,500 × 4 × 12 = $72,000
- Other income: laundry and parking $1,200 per year
- Gross income: $73,200
- Vacancy and credit loss: 6 percent
- EGI: $73,200 × 0.94 = $68,808
- Operating expenses: assume 40 percent of EGI = $27,523
- Example detail inside that 40 percent: property tax $8,500, insurance $6,000, utilities $3,600, maintenance $5,000, management 6 percent of EGI = $4,128, reserves $2,295
- NOI: $68,808 − $27,523 = $41,285
Implied price by cap rate:
- At 6.5 percent cap: Price = $41,285 ÷ 0.065 = $635,154
- At 5.5 percent cap: Price = $41,285 ÷ 0.055 = $750,637
- At 4.5 percent cap: Price = $41,285 ÷ 0.045 = $917,444
Read the numbers
Lower cap rates mean higher prices for the same NOI. That usually reflects strong competition, lower perceived risk, or higher rent growth expectations. Higher cap rates point to lower prices and greater perceived risk or higher cost of capital. In small multifamily, expect wider spreads across neighborhoods and buildings. Location, condition, and insurability carry real weight in South Florida.
Sensitivity: duplex price by cap rate
Same NOI of $31,528, different cap rate assumptions. This is why buyers and sellers focus on both NOI and the market’s cap band.
| Cap rate | Implied price |
|---|---|
| 4.5% | $700,622 |
| 5.5% | $573,236 |
| 6.5% | $485,046 |
Quick pro forma template
Use this simple layout to build a stabilized pro forma. Keep your assumptions consistent across comps.
| Line item | Annual amount |
|---|---|
| Gross Potential Rent | |
| Less: Vacancy and Credit Loss | |
| Plus: Other Income | |
| Effective Gross Income (EGI) | |
| Property Taxes | |
| Insurance (property, flood, wind) | |
| Utilities (owner-paid) | |
| Repairs and Maintenance | |
| Property Management | |
| Landscaping and Pest Control | |
| HOA or Condo Fees | |
| Reserves for Replacements | |
| Total Operating Expenses | |
| Net Operating Income (NOI) |
Tip: For small multifamily in Broward and Palm Beach, many investors model 3 to 8 percent vacancy for stabilized assets, management around 6 percent of EGI, reserves of $300 to $800 per unit per year, and total operating expense ratios around 30 to 45 percent depending on building specifics.
Where to get current local numbers
- Property taxes and parcels: county property appraiser records in Broward and Palm Beach
- Insurance trends: Florida Office of Insurance Regulation
- Flood maps and zone data: FEMA resources
- Market comps and listings: regional commercial marketplaces and local brokerage reports
- Rents and vacancy: recent rental listings and local property managers
- Financing context: agency commentaries and local lenders for loan pricing and DSCR targets
Your next steps
- Confirm market rents and vacancy with recent listings and managers.
- Pull sold comps by property type and compute implied cap rates with stabilized NOI.
- Get current quotes for property taxes and insurance. These can shift NOI materially.
- Build a sensitivity grid with NOI up or down 5 to 10 percent and cap rate shifts of 50 to 200 basis points.
- If you plan to finance, model cash-on-cash return, DSCR, and IRR with conservative terms.
If you want a clean pro forma, local cap rate comps, or a second look at a duplex or fourplex you are considering, connect with Team Van Zyl. You will get practical underwriting support, investor-ready summaries, and guidance on acquisitions or 1031 exchanges across Broward and Palm Beach.
FAQs
What is cap rate in real estate investing?
- Cap rate is the property’s unlevered return based on current income, calculated as NOI divided by price, and used to compare income-producing assets.
How do I calculate NOI for a duplex in Broward?
- Start with annual rent at market levels, subtract vacancy and credit loss, add other income, then subtract operating expenses like taxes, insurance, utilities, maintenance, management, and reserves.
What vacancy rate should I use in Fort Lauderdale?
- For stabilized small multifamily, many investors model 3 to 8 percent and choose a point within that band based on local comps and property condition.
How do insurance costs affect cap rate in South Florida?
- Higher property, wind, and flood premiums raise operating expenses, reduce NOI, and therefore push value lower at the same cap rate.
What cap rate range should I expect for small multifamily?
- Illustrative underwriting bands often fall around 4.5 to 6.5 percent in Broward, with similar or slightly lower levels in parts of Palm Beach depending on location and competition.
What other metrics should I consider besides cap rate?
- Pair cap rate with price per unit, GRM, cash-on-cash return after financing, DSCR for lender fit, and IRR to include growth and timing.
