Cap Rate Calculator
Calculate the capitalization rate (cap rate) of an investment property from net operating income and property value.
How to use this tool
- Enter net operating income (noi) and current property value in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your cap rate and the full breakdown beneath it.
The cap rate is the most widely used metric in commercial real estate. It measures return independent of financing, making it ideal for comparing properties.
Formula
Cap Rate (%) = Net Operating Income (NOI) ÷ Current Property Value × 100
How it works
The capitalisation rate divides a property's annual net operating income by its current market value, expressing the unlevered return as a percentage — essentially how much income the asset generates relative to what it costs, ignoring financing.
This calculator returns a raw cap rate; it does not adjust for taxes, depreciation, or capital expenditure. Cap rates vary significantly by market, asset class, and condition, so comparisons are most meaningful within the same sub-market and property type.
Worked example
Worked example
- Net Operating Income: $12,000 per year; property value: $200,000.
- Cap Rate = 12,000 ÷ 200,000 × 100 = 6%.
Cap Rate = 6%
Key terms
- Net Operating Income (NOI)
- Annual gross rental income minus vacancy losses and all operating expenses (insurance, maintenance, management fees, property tax), before debt service and income tax.
- Cap Rate
- Capitalisation rate — the ratio of a property's NOI to its market value, expressing the property's yield as if purchased with all cash.
- Unlevered return
- The return on an asset calculated without factoring in mortgage financing, allowing fair comparison between properties with different capital structures.
- Market value
- The estimated price a property would achieve in an arm's-length transaction between a willing buyer and seller at the time of valuation.
Frequently asked questions
- What is a good cap rate?
- Cap rate standards vary by market and property type. In primary markets (NYC, SF), cap rates of 3–5% are common. Secondary markets may see 6–8%. Higher cap rates signal higher return — but also higher risk.
- Does cap rate include the mortgage?
- No. Cap rate is a financing-independent metric. It uses Net Operating Income (NOI), which excludes debt service. This lets you compare properties regardless of how they are financed.
- What is the difference between cap rate and cash-on-cash return?
- Cap rate ignores financing; cash-on-cash return accounts for your actual mortgage payments. A property can have a low cap rate but high cash-on-cash return if financed favorably, and vice versa.