Cap Rate Calculator

Calculate capitalization rates and Net Operating Income (NOI) for rental properties.

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Income & Expenses

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Purchase Price / Value

Gross Annual Income

Operating Expenses

Total: -$42,000

Property Taxes (Annual)

Insurance (Annual)

Property Management (%)

Vacancy Rate (%)

Maintenance/Repairs (Annual)

Utilities / Other (Annual)

Capitalization Rate

0.00%

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.

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Cap Rate

0.00%

Net Operating Income

$0/yr

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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, calculated by dividing Net Operating Income (NOI) by current market value.

FormulaCap Rate = NOI / Current Market Value

Unleveraged YieldRepresents annual return assuming an all-cash property purchase without mortgage debt.

Risk SpectrumLower cap rates (3-5%) signal lower risk Class-A assets; higher cap rates (8-12%+) signal higher risk.

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Free Commercial Cap Rate & NOI Model

Download our pre-formatted financial model with automated NOI formulas, operating expense ratios, Gross Rent Multiplier (GRM), and reference benchmarks across 12 asset classes.

Download Excel (.xlsx)Download CSV (.csv)

Tip: To use in Google Sheets, open Google Sheets → File → Import → Upload this file.

Browse Rates by Location

Commercial Real Estate

Typical Expenses: 35%

RV Park

Typical Expenses: 45%

Multifamily

Typical Expenses: 50%

Retail Space

Typical Expenses: 25%

Office Building

Typical Expenses: 40%

Self-Storage Facility

Typical Expenses: 30%

Industrial Warehouse

Typical Expenses: 20%

Mobile Home Park

Typical Expenses: 35%

Medical Office

Typical Expenses: 35%

Hospitality & Hotels

Typical Expenses: 70%

Student Housing

Typical Expenses: 55%

Data Center

Typical Expenses: 25%

Glamping Resort

Typical Expenses: 50%

Targeted Cap Rate Calculators

Excel Formula

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.

Deal WorkflowNext step in financial underwriting

US Real Estate Deal Underwriting Workflow

Active investors evaluate acquisition debt, model the rehab and refinance stages, and lock in long-term non-recourse debt.

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Short-term acquisition & rehab loan

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2. BRRRR Method

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3. DSCR Loan

Permanent 30-year cash-flow debt

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4. Cap Rate

Commercial valuation & net income

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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 relative to its purchase price or asset value.

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% to 5%) usually indicates a lower-risk Class-A property in a core metro, while a higher cap rate (e.g., 8% to 11%+) signals higher tenant turnover, older vintage, or a tertiary market.

How do you calculate cap rate for a rental property step-by-step?

To calculate the cap rate on a rental property: 1) Calculate Gross Scheduled Rent over 12 months, 2) Subtract vacancy reserves (typically 5% to 8%) and all operating expenses (property taxes, insurance, repairs, property management, HOA), giving you Net Operating Income (NOI), 3) Divide NOI by the property purchase price or current market value, and multiply by 100.

How do you calculate cap rate on commercial real estate properties?

Commercial real estate (office, industrial, retail) cap rates factor in lease structures. In NNN (Triple Net) commercial leases where tenants pay property taxes, building insurance, and CAM expenses directly, operating expenses are minimal and NOI is very close to base rent. In gross commercial leases, the landlord absorbs operating costs before calculating NOI.

What is a reverse cap rate calculator and how is it used?

A reverse cap rate calculation estimates property value based on its Net Operating Income and prevailing market cap rates: Property Value = NOI ÷ Market Cap Rate. For instance, if an apartment building produces $120,000 in NOI and local comparable sales indicate a 6.0% market cap rate, the estimated market value is $2,000,000 ($120,000 ÷ 0.06).

Does cap rate include mortgage payments?

No, the cap rate calculation deliberately excludes mortgage payments (debt service). It relies strictly on Net Operating Income (NOI) to measure an asset's pure operational yield, assuming an all-cash purchase. To factor in financing and loan payments, investors calculate the Cash-on-Cash Return or Debt Service Coverage Ratio (DSCR).

Can I download a free cap rate calculator Excel spreadsheet?

Yes! You can download our free Cap Rate & NOI underwriting spreadsheet template using the button above. However, our interactive web calculator provides real-time slider stress-testing on your mobile device without needing desktop spreadsheet software.