Cap Rate Calculator

The cap rate is a property's net operating income divided by its market value, expressed as a percentage. The formula: Cap Rate = (NOI / Property Value) × 100.

It's a snapshot of unleveraged annual return — a financing-independent way to compare two properties on a level playing field. It is not a complete picture of return, but it's the fastest signal you'll get.

• Quick comparison tool between similar properties
• Initial screening filter for investment opportunities
• Benchmark for property values in a given submarket
• Risk indicator across property types and locations
• Trend signal when tracked over time within a market

• Property Value: $1,000,000
• Annual Rental Income: $120,000
• Operating Expenses: $20,000
• Net Operating Income (NOI): $100,000
• Cap Rate = ($100,000 / $1,000,000) × 100 = 10%

That 10% cap rate means the property generates a 10% unleveraged annual return at current performance.

• Property-specific: age, condition, tenant credit, lease structure
• Location: neighborhood, proximity to demand drivers, growth trajectory
• Market conditions: supply, demand, vacancy, rent trends
• Macro: interest rates, inflation, capital flows
• Risk: asset class, market stability, appreciation potential

It depends on your goals and risk tolerance. A higher cap rate often signals higher return — and higher risk. A lower cap rate suggests stability, lower yield, and often better appreciation.

Prime properties in desirable locations typically trade in the 4–6% range. Properties in emerging or higher-risk markets may show 8–12%.

Cap rate is unleveraged — it ignores financing entirely. Cash-on-cash measures the return on actual equity invested after debt service. IRR factors in the full holding period, including sale proceeds and time value of money.

Cap rate is for the first 30 seconds of underwriting. The other metrics are for everything after that.

See the benchmarks table above for full ranges. Quick summary:

• Multifamily, prime urban: 3–5%
• Suburban retail: 6–8%
• Industrial: 5–7%
• Office: 4–9%+ (wide post-2020)

• Initial screen — does this even pencil?
• Benchmark against comps in the same submarket and asset class
• Stress-test with realistic vacancy and expense assumptions
• Pair with cash-on-cash, DSCR, and IRR before committing
• Adjust for upcoming capital expenditures the seller is leaving you

• Doesn't account for appreciation or depreciation
• Ignores leverage and financing costs
• May not reflect upcoming capital expenditures
• Doesn't capture market timing or trends
• Misleading for properties with unusual income patterns (short-term rentals, seasonal, etc.)
• Excludes tax treatment

• Falling cap rates usually indicate rising property values and capital inflow
• Rising cap rates often signal increasing risk premium or capital scarcity
• Local economic conditions create wide variance between markets
• Interest rate moves correlate strongly with cap rate trends

Annually at minimum, or whenever income or market conditions shift materially. Monitoring helps you spot trends and re-rate value before the market does.

Inverse. When cap rates rise, values fall — and vice versa. Same NOI, higher cap rate, lower price. This is the entire mechanic behind cap rate–driven valuation.

GRM is property value divided by gross annual rental income. It's a faster but blunter cousin to cap rate. A $500,000 property earning $50,000 in gross rent has a GRM of 10. Use it as a quick screen — never as a substitute for NOI-based analysis.