Insurance cost and property value calculator
Insurance is an operating expense, so a higher premium lowers net operating income (NOI) by the same amount. Under direct capitalization, value is NOI divided by the cap rate, so the change in NOI divided by the cap rate is the change in value. This calculator works out both changes, in total and per unit.
Result
- Change in net operating income
- -$80,000
- Change in value
- -$1,454,545
- Per unit
- -$7,273
Estimate from the numbers you enter. General information, not insurance, legal or financial advice, and not an appraisal.
How the math works
Direct capitalization divides stabilized NOI by the market cap rate, the ratio of NOI to price or value seen in comparable sales.
Fannie Mae's multifamily underwriting subtracts line-by-line operating expenses, insurance among them, from effective gross income to reach underwritten NOI. Interest, principal payments, depreciation and amortization are left out of operating expenses.1
- Premium change = new premium minus current premium.1
- Change in NOI = current premium minus new premium.1
- Change in value = change in NOI / cap rate.2
- Per unit = each change / number of units.1
The calculator holds the cap rate and every other income and expense line constant. It does not forecast premiums, rents or sale prices. In practice NOI also moves with market rent and vacancy, and cap rates move with the capital markets.
Example
Example: a 200-unit apartment property's annual premium rises from $160,000 to $240,000, and comparable sales point to a 5.5% cap rate.2
| Line | Arithmetic | Result |
|---|---|---|
| Premium change | $240,000 minus $160,000 | +$80,000 |
| Change in NOI | $160,000 minus $240,000 | minus $80,000 |
| Change in value | $80,000 / 0.055 | minus $1,454,545 |
| NOI per unit | $80,000 / 200 | minus $400 |
| Value per unit | $1,454,545 / 200 | minus $7,273 |
At a 5.5% cap rate, each $1 of added annual premium takes about $18.18 off value.2
Where the numbers come from
- Current premium: the insurance line of the property's operating statement. Fannie Mae has lenders review prior operating statements and the property's insurance policies.1
- New premium: a renewal or new-policy quote. Fannie Mae underwrites the quoted expense from a bona fide written quote from a reputable broker for a new 12-month policy, or, by the policy's remaining term, 110% of the current expense (under 6 months) or 105% (6 to 12 months).1
- Cap rate: comparable sales, each one's NOI divided by its sale price, taking the rate of the sale most like the property.
- Units: the current rent roll, which Fannie Mae uses for rents in place for occupied units.1
Questions
- Is property insurance an operating expense?
- Yes. Fannie Mae's multifamily guide lists insurance, item 17(c), among the stabilized operating expenses subtracted from effective gross income to reach underwritten NOI.1
- How does a cap rate turn NOI into value?
- Under direct capitalization, value is stabilized NOI divided by the market cap rate. Arithmetic: at a 5% cap rate, $1,000,000 of NOI capitalizes to $20,000,000, and a $50,000 drop in NOI lowers that by $1,000,000.2
- How do lenders underwrite an insurance increase?
- Fannie Mae uses a reputable broker's bona fide written quote for a new 12-month policy, or, by the remaining policy term, 105% to 110% of the current expense. On an acquisition it uses only the purchaser's carrier's premiums, and where an area is prone to catastrophic events the expense must align with the market.1
Cloudbreak
Cloudbreak keeps every policy, statement of values and loss run in one place per property, tracks renewals, and watches every building against storms with its proprietary predictive storm engine, built with AI and backed by meteorologists.
Sources
The tool does arithmetic only and sends nothing anywhere. The rules it follows are from the published sources below.
- 1. Fannie Mae: Multifamily Selling and Servicing Guide, Section 203.01: Underwritten Net Cash Flow (effective October 26, 2026)
- 2. Texas Real Estate Research Center, Texas A&M University: For What It's Worth: Accurate Valuation Makes the Difference (January 8, 2010)