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Finance Calc Kit
Real estate

Capitalization Rate Calculator

Calculate the capitalization rate (cap rate), net operating income, or property value for real estate investment analysis.

Property inputs

$
$

Capitalization rate

8.00%

Step-by-step calculation

Open to see the formula and substituted values.

  1. Cap rate formula

    Cap Rate=NOIProperty Value×100\text{Cap Rate} = \frac{\text{NOI}}{\text{Property Value}} \times 100

    $80,000.00 / $1,000,000.00 x 100 = 8.00%.

  2. Interpretation

    The property generates a 8.00% unlevered return. A cap rate above 8% suggests higher risk or a tertiary market.

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How the capitalization rate calculator works

The capitalization rate (cap rate) expresses net operating income (NOI) as a percentage of property value. It is a quick way to compare unlevered returns across commercial and residential income properties. This calculator can solve for cap rate, NOI, or property value.

Cap rate ignores financing, so it differs from cash-on-cash return which measures levered yield. For levered return analysis, use the cash-on-cash return calculator. For a quick price-to-rent screening metric before running NOI math, try the gross rent multiplier calculator. Cap rate is the reciprocal of the net income multiplier, so investors often switch between the two when comparing deals. For general investment performance, open the ROI calculator.

Cap rate formula

Cap Rate=NOIProperty Value×100\text{Cap Rate} = \frac{\text{NOI}}{\text{Property Value}} \times 100

NOI is gross rental income minus operating expenses (property taxes, insurance, maintenance, management) but before debt service and income taxes. Property value is typically the purchase price or appraised market value.

Worked example: $80,000 NOI on a $1,000,000 property

  1. Net operating income: $80,000 per year
  2. Property value: $1,000,000
  3. Cap rate: ($80,000 / $1,000,000) x 100 = 8.00%

An 8% cap rate means the property generates $0.08 of NOI per dollar of value before financing. Lower cap rates often indicate lower risk or stronger locations; higher cap rates may reflect more risk or value-add opportunity.

Solving for NOI or property value

Rearrange the formula to estimate NOI from a known cap rate and price, or to back into value from NOI and a market cap rate. This is common when underwriting acquisitions against comparable sales in the same submarket.

Property Value=NOICap Rate/100\text{Property Value} = \frac{\text{NOI}}{\text{Cap Rate} / 100}

Frequently asked questions

What is a good cap rate?
There is no universal good cap rate. Markets vary widely. Core urban assets may trade below 5%, while secondary markets or value-add deals may exceed 8%. Compare against local comps and your required return.
Does cap rate include mortgage payments?
No. Cap rate is an unlevered metric based on NOI before debt service. Use cash-on-cash return to measure performance after financing.
What is included in NOI?
NOI includes rental income minus operating expenses such as taxes, insurance, repairs, and property management. It excludes mortgage interest, depreciation, and income taxes.
Can I solve for property value?
Yes. Select Property Value as the solve target, enter NOI and a market cap rate, and the calculator divides NOI by the cap rate to estimate value.
Are the results stored?
No. All calculations run locally in your browser.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.