Cap Rate Calculator

What this calculator does

This calculator handles commercial real-estate capitalization rate math in two directions. Given the Net Operating Income (NOI) and property value, it computes the cap rate as a percentage. Given the NOI and a target cap rate, it back-solves the implied property value. The tool surfaces all three numbers together so you can sanity-check your inputs against typical market bands.

All math is plain division running on your device.

What cap rate is — and what it isn’t

Cap rate is the unlevered annual return on a real-estate investment, expressed as a percentage:

cap rate (%) = NOI / property value × 100

A property generating $90,000 of NOI annually at a $1,500,000 purchase price has a cap rate of 6%. If you paid all cash, your annual operating return would be 6%. If you bought the same property at a $1,800,000 price, your cap rate would be 5% — a higher price for the same income stream means a lower return.

Cap rate is not your actual ROI when financing is involved. With a mortgage, your cash-on-cash return depends on the loan terms; this can be substantially higher or lower than the cap rate depending on whether leverage is positive (mortgage rate below cap rate) or negative (above cap rate).

Cap rate is not total return. It ignores appreciation, depreciation tax benefits, and capital improvements. A 5% cap-rate property that appreciates 5%/year over 10 years delivers a much higher IRR than the cap rate alone suggests.

Reading market cap rate bands

Cap rates vary by asset class, market, and economic cycle. A rough guide as of 2024-25 in the US:

Two general rules. Lower cap rate = higher quality (lower risk, more appreciation potential, the market is pricing in scarcity). Higher cap rate = higher current yield but more risk (vacancy concerns, market trajectory issues, deferred capex). A 10% cap rate is not automatically a “better deal” — it usually reflects something the market is pricing in that you may not have spotted.

NOI — what counts, what doesn’t

Net Operating Income = effective gross income − operating expenses

Effective gross income = gross potential rent (all units rented at asking) − vacancy and collection loss (typically 5-10%).

Operating expenses include:

• Property taxes (often the largest single line item)
• Property insurance
• Repairs and routine maintenance
• Property management fees (8-10% of gross rent for single-family, 4-6% for multifamily)
• Utilities paid by the owner (water/sewer on multifamily, lawn care)
• Trash collection
• Pest control
• Landscaping
• Some legal and accounting

Operating expenses do NOT include:

• Mortgage principal and interest (debt service is separate from operating)
• Depreciation (it’s a tax shelter, not a cash expense)
• Capital expenditures — new roof, HVAC replacement, parking resurfacing (these reduce value if not done but are not part of NOI)
• Income tax on rental profits

A common error is including the mortgage in operating expenses, producing a misleadingly low NOI and a misleadingly low cap rate. Cap rate is purely about the property’s income-generating capacity at the operating level — debt service comes after.

How to use cap rate in practice

Buyers use cap rate three ways:

1. Price evaluation: if comparable properties in the market trade at 6% cap rates and you’re being offered one at 5.5% cap, the seller is asking a premium. Calculate the implied value at 6% to see what the property would sell for at market — the gap is what you’d need to justify (location premium, NOI growth potential, etc.).

2. NOI back-solve: if you have a target return and you know cap rates in your market are around 6%, the property needs to generate value × 0.06 in annual NOI. Use this calculator’s “find value” mode in reverse — input the NOI you can achieve, set the cap rate to your target, get the maximum you’d pay.

3. Cross-comparison: running cap rate on every property in a shortlist lets you sort apples-to-apples across different price points and rental incomes.

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The math is two division operations running in JavaScript locally. There are no fetch calls, no analytics on the values you enter, no server-side logging.