Cap Rate Calculator
Calculate capitalization rate for investment property valuation
Calculator
Annual Operating Income
Total annual rent collected
Taxes, insurance, maintenance, management
Tip: Operating expenses typically include property tax, insurance, maintenance, property management, utilities (if paid by owner), vacancy allowance. Do NOT include mortgage payments or depreciation.
Net Operating Income (NOI)
Cap Rate Guide (Commercial Real Estate)
How to Use
Calculate capitalization rate for commercial property investment
Choose calculation mode
Select whether to calculate cap rate or property value
Enter property value or target cap rate
Input the known variable
Add gross rental income
Enter total annual rental income
Input operating expenses
Add all annual operating costs (not mortgage)
View results
See cap rate, NOI, and property valuation
Cap Rate Formula
Cap Rate = NOI / Property Value x 100 Property Value = NOI / Cap Rate
Net Operating Income divided by property value gives the unlevered return rate.
Frequently Asked Questions
Cap rate (capitalization rate) measures a property's potential return without financing. It's the ratio of Net Operating Income (NOI) to property value. Higher cap rates indicate higher returns but often higher risk. It's essential for comparing investment properties regardless of financing.
Cap rates vary by property type and location. Class A properties in prime areas: 3-5%. Class B in good areas: 5-7%. Class C value-add: 7-10%. Higher cap rates (10%+) suggest higher risk. For most investors, 5-8% represents a good balance of return and risk.
Cap Rate = (Net Operating Income / Property Value) x 100. NOI = Gross Rental Income - Operating Expenses. Operating expenses include property tax, insurance, maintenance, management, and vacancy allowance. Do NOT include mortgage payments in NOI.
Cap rate ignores financing and measures property return. Cash-on-cash return includes mortgage payments and measures return on actual cash invested. A property with 6% cap rate might yield 10% cash-on-cash with leverage. Use cap rate to compare properties; cash-on-cash to evaluate your actual return.