What Is Band of Investment?
The band-of-investment method builds an overall capitalization rate by weighting the required returns on each piece of a property's capital stack — typically the mortgage constant on the debt portion and the required equity yield on the equity portion — by their share of total financing.
Formula
Overall Rate = (Loan-to-Value % × Mortgage Constant) + (Equity % × Required Equity Yield)
Why It Matters
It's a useful cross-check on a market-derived cap rate, since it grounds the rate in the actual cost of the debt and equity available for that specific deal.