Cap Rate Calculator

Educational estimate, not investment advice. This tool is for general education only — your actual results depend on your specific inputs, financing, and local market conditions. It is not investment, tax, or financial advice.

What cap rate tells an investor

If you are weighing a rental property or a commercial building, the capitalization rate (“cap rate”) is one of the fastest ways to size up whether the price makes sense. In plain terms, cap rate estimates the annual return you would earn on a property if you bought it in cash, before any financing. It expresses a property’s yearly income as a percentage of what you pay for it, which lets you compare very different deals on the same footing: a small duplex, a strip-mall unit, and an apartment building can all be lined up side by side by their cap rates.

Because it strips out how the deal is financed, cap rate answers a specific question: how hard is this asset working relative to its price? It is a starting screen, not a full underwriting model. Use it to shortlist properties and to sanity-check an asking price against similar sales in the same market, then dig deeper on the ones that clear the bar.

How this calculator works

The formula is simple:

Cap rate = Net Operating Income (NOI) ÷ property value (or purchase price)

The result is usually shown as a percentage. The engine of the calculation is NOI, the property’s income after running costs but before debt:

NOI = gross operating income − operating expenses

Gross operating income is all the money the property brings in over a year (rent plus any other income such as parking or laundry), typically after a realistic allowance for vacancy. Operating expenses are the recurring costs of running the property: property taxes, insurance, property management, repairs and maintenance, utilities you pay, and similar items.

Two categories are deliberately excluded from NOI:

• Mortgage payments / debt service. Cap rate measures the asset, not your loan, so principal and interest are left out.
• Capital expenditures (capex) such as a new roof or HVAC system, plus one-time items and income taxes.

Worked example (round numbers):

• Purchase price: $1,000,000
• Gross annual income: $100,000
• Operating expenses: $40,000
• NOI = $100,000 − $40,000 = $60,000
• Cap rate = $60,000 ÷ $1,000,000 = 0.06 = 6%

Enter your own figures above and the calculator returns the cap rate the same way. If you know the cap rate for comparable properties and the NOI, you can also rearrange the formula to estimate value: Value = NOI ÷ cap rate.

What’s a good cap rate?

There is no single “good” number. A cap rate is good or bad only relative to the market, the asset class, and the risk of a specific deal.

The core trade-off: a higher cap rate means a higher yield but usually more risk (older buildings, weaker locations, shorter or less certain leases, tertiary markets). A lower cap rate signals a premium or more stable asset in a strong market, where investors accept less current yield in exchange for safety and expected appreciation. Interest rates matter too: when borrowing costs rise, buyers tend to demand higher cap rates, and vice versa.

Cap rates also vary meaningfully by property type. Industry surveys generally show stabilized multifamily and industrial at the lower end of the range, with retail and especially office toward the higher end, reflecting differences in perceived risk and demand (CBRE, US Cap Rate Survey, H2 2025 / early-2026 updates, cbre.com, accessed July 2026). Rather than anchor on a single figure, pull recent comparable sales for your exact market and asset class before deciding whether a cap rate is attractive. (We do not publish specific market cap-rate figures here because they move constantly and vary block by block.)

Cap rate limitations

Cap rate is a screen, not the whole picture. Keep its blind spots in mind:

• It ignores financing. Because NOI excludes debt service, cap rate says nothing about your actual cash return after a mortgage. Two investors buying the same building at the same cap rate can have very different returns depending on their loans. For that, look at cash-on-cash return.
• It ignores appreciation. Cap rate is a snapshot of current income; it does not capture future rent growth or property value gains, which are often where real-estate returns come from.
• It ignores capex and lumpy costs. A property can show a healthy cap rate while a looming roof, parking-lot, or HVAC replacement quietly erodes returns. Reserve for capital costs separately.
• It is only as good as the inputs. Optimistic rent or understated expenses (especially skipping a vacancy allowance) will inflate the cap rate. Use realistic, verifiable numbers.

Frequently Asked Questions

What’s the difference between cap rate and cash-on-cash return?

Cap rate measures the property’s unleveraged yield (NOI ÷ price) and ignores your loan. Cash-on-cash return measures your leveraged return: annual pre-tax cash flow after debt service, divided by the actual cash you invested. Cap rate compares assets; cash-on-cash reflects your specific deal.

Does cap rate include the mortgage?

No. NOI is calculated before debt service, so mortgage principal and interest are excluded. Cap rate is intentionally independent of how you finance the purchase.

What is a good cap rate?

It depends on the market, asset class, and risk. Higher cap rates offer more yield but typically more risk; lower cap rates reflect premium, more stable assets. Compare against recent sales of similar properties in the same area rather than a universal target.

How do I find NOI?

Add up the property’s annual income (rent and other income, after a vacancy allowance), then subtract annual operating expenses (taxes, insurance, management, maintenance, utilities). Do not subtract mortgage payments, capex, or income taxes. The result is NOI.

Can I use cap rate to estimate a property’s value?

Yes. Rearranging the formula, Value = NOI ÷ cap rate. If comparable properties trade at a 6% cap and your target’s NOI is $60,000, an implied value is $60,000 ÷ 0.06 = $1,000,000. Treat this as an estimate, cross-checked against actual comparable sales.

Should vacancy be included in the calculation?

Yes. Realistic underwriting subtracts an expected vacancy/credit-loss allowance from gross potential rent before computing NOI. Using 100%-occupied numbers overstates income and inflates the cap rate.

Last reviewed July 3, 2026 by the askdoss Editorial Team. This calculator and its supporting information are for general educational purposes only and are not financial, tax, legal, or investment advice. Figures cited are estimates that change over time — verify current numbers with the relevant institution or a qualified professional before making decisions.