Platform · Glossary
Operating cap rate.
The property's actual cap rate at the analyzed price. In 3Y's backend it's the effective_cap_rate — NOI divided by price under the current assumptions.
Operating cap rate = NOI ÷ Price
It's reported in the report's advanced-metrics section under the label Operating cap rate, with the tooltip: "Net operating income divided by purchase price."
Why it has its own name
In a 3Y analysis, the term cap rate alone is ambiguous because two different cap rates are in play:
- Market cap rate — the prevailing local cap rate, used to compute the Market Estimate via the capitalization valuation method
- Operating cap rate — the cap rate the specific deal produces at the analyzed price
Distinguishing them matters because the difference between them is one of the most useful single signals in a 3Y report.
The operating–market delta as a cash flow strength signal
The cashflow score in analysis.py takes the difference operating_cap_rate − market_cap_rate as one of its five inputs. The scoring band runs from −3% (operating cap rate 3 points below market — score 0) to +3% (operating cap rate 3 points above market — score 100). What this measures:
- Operating well above market → the property generates yield in excess of what the market is currently paying for. That excess is structural cash flow strength — it survives small changes in vacancy, expenses, and rate. If rents soften 5% or expenses rise, the property is still cash-positive in a way that a marginal cap-rate-at-market deal is not.
- Operating at or below market → the deal depends on appreciation, leverage, or rent growth to produce returns. These are legitimate strategies, but they require execution risk that pure cash flow doesn't.
This is why 3Y reports the operating cap rate prominently next to a Market Estimate that's derived from the market cap rate. The two numbers placed side by side tell you, at a glance, whether the deal works on the property's own income or only with the market's wind at its back.