Cap Rate Calculator

Capitalization rate (cap rate) is the unlevered annual yield on a commercial real estate investment: Cap Rate = NOI ÷ Property Value. NOI (net operating income) is gross rental income minus all operating expenses — taxes, insurance, repairs, management, utilities you cover, and a vacancy allowance. It excludes mortgage payments, depreciation, and capital improvements.

The same formula rearranges three ways. Solve for value when you know NOI and a market cap rate (Value = NOI ÷ Cap Rate). Solve for NOI when you know value and cap rate (NOI = Value × Cap Rate). This is why cap rate is the lingua franca of commercial brokers and appraisers: a single number lets buyers and sellers triangulate price quickly.

Cap rate is unlevered on purpose. It isolates the asset's performance from the buyer's financing decisions. A property's cap rate doesn't change when you put 25% down vs 35% down — but your cash-on-cash return absolutely does. That's why CRE underwriters always start with cap rate and layer in financing afterward.

A small office building has $120,000 of stabilized NOI and is listed at $2,000,000. Cap rate = 120,000 ÷ 2,000,000 = 6.0%. That tells you the unlevered annual return — what an all-cash buyer would earn before debt and taxes.

Switch to Solve Value mode: same $120,000 NOI, but you decide market cap rates have moved to 7.0% (rates rose, cap rates expanded). Value = 120,000 ÷ 0.07 = $1,714,286. The 100 bps of cap rate expansion just cost the seller $285,000 in value with zero change to operations.

Switch to Solve NOI mode: a buyer needs a 6.5% cap on a $2M asset to make their numbers work. Required NOI = 2,000,000 × 0.065 = $130,000. The seller now knows they need to push NOI by another $10,000 (about 8.3%) to support the asking price at the buyer's cap rate.

Class-A multifamily, primary markets (NYC, LA, Boston, SF): 4.0–5.0%. Lowest yields go to the lowest-risk, most liquid assets.

Class-A multifamily, secondary markets (Nashville, Charlotte, Salt Lake): 4.75–5.75%.

Industrial / logistics, primary markets: 4.5–6.0% — compressed during the e-commerce boom; widening with rates.

Office, primary markets: 6.5–8.5% post-2022 — buyers demanding much higher yields to compensate for WFH demand uncertainty.

Retail strip centers, secondary markets: 6.5–8.0%, depending on tenant mix and credit.

Hotels and self-storage: typically 7.5–9.5% — operationally intensive, volatile income.

Tertiary markets and value-add deals: 8%+ commonly required to compensate for thinner buyer pools and higher capex risk.

Using gross rent instead of NOI — gross rent inflates apparent yield by 30–50%. Always deduct operating expenses, including a vacancy reserve.

Using the seller's NOI without scrubbing it — sellers routinely understate management fees, omit reserves for capex, and use last-month's rent roll as if it were stabilized. Re-underwrite from scratch.

Confusing trailing-12 NOI with stabilized NOI — a value-add deal might trade at a 4% cap on T12 NOI but a 7% cap on year-2 stabilized NOI. The latter is what matters; the former is a marketing number.

Ignoring market cap rate movement — cap rates compress and expand with interest rates and capital flows. Your exit cap rate (year 5 or year 10) is the single biggest IRR driver and is rarely equal to your entry cap.

Comparing across asset classes — a 7% multifamily cap is not equivalent to a 7% office cap. The risk-adjusted comparison requires looking at lease terms, tenant credit, capex needs, and demand stability.