Cap Rate Calculator
Calculate the capitalization rate for any investment property. Enter net operating income and property value to instantly see your cap rate, or use a target cap rate to estimate property value.
Quick Answer
Cap Rate = Net Operating Income / Property Value x 100. A property with $50,000 NOI and a $700,000 value has a 7.14% cap rate. Higher cap rates mean higher yields but often more risk.
Calculate Cap Rate
Enter your property's net operating income and value or purchase price.
Estimate Property Value from Target Cap Rate
If you know your desired cap rate, estimate what the property should be worth.
About This Tool
The Cap Rate Calculator helps real estate investors quickly evaluate the income potential of an investment property. Capitalization rate — commonly called “cap rate” — is one of the most widely used metrics in commercial and residential real estate investing. It provides a snapshot of a property's unleveraged yield, making it invaluable for comparing properties across different markets and price points.
How Cap Rate Works
Cap rate is calculated by dividing a property's annual net operating income (NOI) by its current market value or purchase price. The result is expressed as a percentage. For example, a property generating $60,000 in annual NOI with a market value of $800,000 has a cap rate of 7.5%. This tells the investor that, ignoring financing, the property yields 7.5% annually on the investment.
Understanding NOI
Net operating income is the total income a property generates minus all operating expenses. Operating expenses include property taxes, insurance, maintenance, property management fees, utilities (if paid by the owner), and vacancy allowances. NOI explicitly excludes mortgage payments, capital expenditures, and depreciation. Getting an accurate NOI figure is critical — an inflated NOI will overstate the cap rate, potentially leading to overpaying for a property.
Cap Rate as a Valuation Tool
Beyond measuring yield, cap rate is widely used for property valuation through the income approach. If you know the market cap rate for similar properties in an area and the subject property's NOI, you can estimate its value by dividing NOI by the cap rate. This is how commercial appraisers often determine property values, and it's the basis for the “Estimate Property Value” feature in this calculator.
Cap Rate Ranges by Property Type
Different property types and markets command different cap rates. Class A office buildings in major cities might trade at 4-5% cap rates. Multifamily apartments in secondary markets often see 5-7%. Retail strip centers can range from 6-9%. Single-tenant net lease properties with strong credit tenants might be 4-6%. Industrial properties have become increasingly popular, compressing cap rates to 4-7% in many markets. Higher cap rates typically correspond to higher perceived risk.
Limitations to Keep in Mind
Cap rate is a point-in-time metric that does not account for future NOI growth, property appreciation, or depreciation tax benefits. It also ignores the impact of leverage (financing). A property with a modest 5% cap rate might deliver excellent returns with favorable financing terms. Additionally, cap rate does not capture renovation potential or value-add opportunities. Use cap rate as one tool in your analysis alongside cash-on-cash return, DSCR, and total return projections.