Cap Rate Calculator

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

It is a snapshot of unleveraged annual return, which makes it a financing-independent way to compare two properties on a level footing. It is not a complete picture of return, but it is the fastest signal you will get.

• Property value: $1,000,000
• Gross annual rental income: $120,000
• Operating expenses: $20,000
• Net operating income (NOI): $100,000
• Cap rate = ($100,000 ÷ $1,000,000) × 100 = 10%

A 10% cap rate means the property returns 10% a year on its price before any financing, at current performance.

NOI is effective gross income minus operating expenses. Effective gross income is gross rental income minus vacancy and credit loss. Operating expenses include property tax, insurance, utilities, repairs and maintenance, and management.

NOI excludes mortgage payments, depreciation, income tax, and capital expenditures. Keeping those out is what makes cap rates comparable across buyers with different financing.

It depends on the property type, the market, and the risk you are willing to carry. In major US metros, stabilized multifamily trades roughly 3.5–7.5% depending on class, industrial 5–7%, retail 5–8.5%, and office 5.5–9.5%. The reference table above breaks these down by sub-type.

A higher cap rate means more income per dollar of price, and usually more risk. A lower cap rate means you are paying up for stability, location, or expected growth.

Neither on its own. A higher cap rate often signals higher return and higher risk. A lower cap rate suggests stability, lower yield, and often better appreciation prospects.

The useful question is whether the cap rate is right for that asset in that submarket. A 9% cap on a trophy office tower is a warning; a 9% cap on a suburban strip center may be ordinary.

• Property-specific: age, condition, tenant credit, lease structure and term
• Location: submarket, 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

Cap rate is unleveraged: it ignores financing entirely. Cash-on-cash measures the return on the equity you actually invested, after debt service. IRR covers the whole holding period, including sale proceeds and the time value of money.

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

Inverse. Holding NOI constant, a higher cap rate means a lower price and a lower cap rate means a higher price: Value = NOI ÷ Cap Rate. This is the whole mechanic behind cap-rate-driven valuation, and why small moves in market cap rates move prices a lot.

GRM is property value divided by gross annual rental income. It is a faster but blunter cousin of the cap rate because it ignores expenses. 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.

• Ignores leverage and financing costs
• Ignores appreciation, depreciation, and tax treatment
• May not reflect capital expenditures the seller is leaving you
• Says nothing about market timing or trend
• Misleading for properties with irregular income (short-term rentals, seasonal assets)

• Initial screen: does this even pencil?
• Benchmark against comparables 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