Cap Rate Calculator
Calculate capitalization rate (Cap Rate) and Net Operating Income (NOI) to benchmark income-generating commercial and multifamily real estate.
Calculator Inputs
LiveHow to use the Cap Rate Calculator
- 1Enter property current market value or purchase price.
- 2Enter gross annual rental income.
- 3Enter annual operating expenses (excluding mortgage financing charges).
- 4View the Net Operating Income (NOI) and resulting Cap Rate percentage.
How Cap Rate is Calculated
Cap rate expresses the ratio between the net operating income produced by an asset and its current capital market value.
Operating expenses include taxes, insurance, repairs, and management fees, but exclude debt service (mortgage payments).
- 1NOI = $130,000 - $40,000 = $90,000
- 2Cap Rate = ($90,000 / $1,200,000) × 100 = 7.50%
What affects Cap Rate results
- Market location tier (primary gateway cities usually trade at lower cap rates due to higher stability).
- Tenant credit quality and lease term lengths.
- Deferred capital maintenance liabilities.
Frequently Asked Questions
Does Cap Rate include mortgage loan payments?
No. Cap rate intentionally ignores debt financing so that properties can be compared objectively regardless of how different buyers choose to finance them.
Is a higher or lower Cap Rate better for an investor?
A higher cap rate indicates higher annual cash yield relative to price (often with higher perceived risk), while a lower cap rate indicates lower yield but typically safer, prime asset quality.
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