AssetCalcs.

Cap Rate Calculator

Instantly determine the capitalization rate (return on investment) for any commercial or rental real estate property.

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Executive Summary

What is a Cap Rate? The Capitalization Rate (Cap Rate) is a fundamental real estate metric indicating the expected rate of return on an investment property. It is calculated by dividing the property's Net Operating Income (NOI) by its current market value.

  • Formula: Cap Rate = NOI / Current Market Value
  • What it means: It represents your annual unleveraged yield (assuming you bought the property entirely with cash, without a mortgage).
  • Risk vs Reward: Lower cap rates (3-5%) indicate lower risk/higher class assets, while higher cap rates (8-12%+) indicate higher risk or distressed assets.

Income & Expenses

Gross Income & Value

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Operating Expenses

Total: -$42,000
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Capitalization Rate

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Effective Gross Income$0
Total Operating Expenses-$0
Expense Ratio0%
Net Operating Income (NOI)$0

Exclude mortgage payments (debt service) and capital expenditures from NOI for an accurate Property cap rate.

Browse Rates by Location

Targeted Cap Rate Calculators

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Next Steps for Real Estate Investors

DSCR Eligibility →

Now that you know the NOI, see if this property generates enough cash flow to qualify for a non-recourse DSCR loan.

BRRRR Calculator →

Planning to force appreciation? Calculate how much equity you can extract via a cash-out refinance.

How to Calculate a Cap Rate (The Formula)

To determine the cap rate of an asset, divide the property's Net Operating Income (NOI) by its market value or purchase price.

Cap Rate = Net Operating Income (NOI) / Current Market Value

For example, if you purchase a multifamily rental property for $1,000,000 and it generates $70,000 in Net Operating Income after all expenses (excluding debt service), the property is trading at a 7% capitalization rate.

What is a Good Cap Rate?

One of the most common questions in commercial real estate is: "What is a good cap rate?" The truth is, there is no single universally "good" rate. Cap rates are a measure of risk vs. reward.

  • Low Cap Rates (3% to 5%): Generally found in Class A properties in core tier-one markets (like Manhattan or San Francisco). Investors accept lower yields because the property is considered a "safe haven" asset with minimal risk of vacancy or extreme depreciation.
  • High Cap Rates (8% to 12%+): Generally found in Class C or D properties, tertiary markets, or heavily distressed assets. Investors demand a higher annual yield to compensate for the significant risk of tenant turnover, major structural repairs, or neighborhood instability.

Ultimately, a "good" cap rate is one that meets your personal investment criteria and adequately compensates you for the risk profile of that specific neighborhood and asset class.

Rental Property vs Commercial Real Estate Cap Rates

While the cap rate formula remains identical, the inputs differ wildly between a single-family rental property and massive commercial real estate (CRE) assets like industrial warehouses or retail centers.

Residential rental properties typically suffer from a higher Expense Ratio. Factoring in property management, constant maintenance calls, lawn care, and tenant turns, operating expenses frequently consume 40% to 50% of gross income. Conversely, commercial real estate often utilizes NNN (Triple Net) leases where the tenant covers taxes, insurance, and maintenance directly, driving the expense ratio drastically lower. You can explore these differences using our specialized asset class calculators below.

Ditch the Cap Rate Calculator Excel Template

Many investors still rely on a clunky cap rate calculator excel spreadsheet. While spreadsheets are powerful for complex 10-year discounted cash flow (DCF) models, they are painfully slow when you are quickly underwriting 20 different deals on the MLS or LoopNet.

Our interactive simple cap rate calculator allows you to instantly slide the expense ratio to stress-test your NOI, allowing you to underwrite deals on your smartphone in seconds without messing with broken Excel formulas.

Educational Guide

How to Calculate Capitalization Rate (Cap Rate) for Real Estate Assets

Master the capitalization rate formula. Learn how operating expense ratios differ by asset class (from multifamily to self-storage) and how to calculate Net Operating Income (NOI).

Read Full Guide →

Frequently Asked Questions

What is a capitalization rate (cap rate)?

The capitalization rate, or cap rate, is a fundamental real estate metric used to evaluate the profitability and risk of an investment property. It represents the annual unlevered rate of return based on the expected income the property will generate.

What is a good cap rate for an investment property?

A "good" cap rate is highly subjective and depends on the asset class and location. Generally, a cap rate between 5% and 8% is considered healthy. A lower cap rate (e.g., 4%) usually indicates a lower-risk property in a highly desirable area, while a higher cap rate (e.g., 9%+) often signals higher risk or a less desirable location.

How do you calculate a property's cap rate?

To calculate the cap rate, you divide the property's Net Operating Income (NOI) by its current market value or purchase price. The formula is: Cap Rate = (NOI / Property Value) × 100.

Does cap rate include mortgage payments?

No, the cap rate calculation does not include mortgage payments (debt service). It relies on Net Operating Income (NOI), which measures the property's profitability purely based on operational revenues and expenses, assuming the property was bought with cash. This allows investors to compare properties on an apples-to-apples basis regardless of how they are financed.