Cap Rate Calculator
Calculate the capitalization rate of an investment property from its net operating income and value, or find the implied property value from a target cap rate.
Calculator by Toolsloft ↗- Cap rate
- 5.00%
This calculator finds the capitalization rate of an income property from its net operating income and value, or works the other way to find the price that produces a target cap rate. Real estate investors use it to compare deals quickly and to gauge the unlevered yield on a rental or commercial building before financing.
How this is calculated
Cap rate is computed as net operating income divided by property value, times 100; in value mode it inverts the same relationship as NOI divided by the cap rate expressed as a decimal.
How to use
- Choose whether to calculate the cap rate or the implied property value.
- Enter the annual net operating income (rent minus operating expenses, before debt service).
- Enter the property value or cap rate, then read the result.
Examples
- NOI $50,000, value $1M:
cap rate 5.00% - NOI $60,000, cap rate 6%:
implied value $1,000,000
FAQ
- What is a cap rate?
- Cap rate (capitalization rate) is the ratio of a property's net operating income to its current market value, expressed as a percentage. A 5% cap rate on a $1M property means $50,000 annual NOI.
- What is net operating income?
- Net operating income (NOI) is gross rental income minus operating expenses (property taxes, insurance, maintenance, management fees). It excludes mortgage payments and depreciation.
- What is a good cap rate?
- It depends on the market. In expensive urban markets, 4-6% is typical. In secondary markets, 6-9% is common. A higher cap rate implies higher return but often higher risk or a less desirable location.
- Does cap rate include financing costs?
- No. Cap rate is an unlevered metric calculated before mortgage payments. It reflects the property's return as if purchased in cash.