Cap Rate Calculator
Solve cap rate, NOI, or value, with growth adjustment.
Capitalization rate
Estimates for planning only, not financial advice.
Cap rate compresses a property deal into one percentage: annual net operating income divided by price. A $24,000 NOI on a $300,000 property is an 8% cap rate, meaning the property yields 8% a year before financing. Investors use it three ways: to compare properties, to value a property from its income, and to back out the income a price implies. This calculator solves any leg of that triangle and adjusts the valuation for expected NOI growth.
How to Use This Calculator
Choose what to solve for. To find a property\'s cap rate, enter its NOI and price or value. To value a property, enter NOI and the market cap rate from comparable sales. To check what income a listing price implies, enter the price and market cap rate. The optional growth rate applies the Gordon adjustment, valuing growing income more highly. Always use stabilized NOI: normalized vacancy and expenses, not a lucky or unlucky single year.
Pick the unknown: cap rate, NOI, or value. Enter the two numbers you know.
Add an NOI growth rate if the market prices growth in. Keep it modest: 1 to 3% for most markets.
Compare the result to recent comparable sales. A cap rate far from the local range means your NOI or price assumption is off. For financed returns, run the deal through our cash-on-cash return calculator next.
The Cap Rate Triangle
All four are the same relationship rearranged. The growth adjustment deserves attention because it explains real market behavior: at an 8% required return with 2% NOI growth, a $24,000 NOI property is worth $400,000 (a 6% going-in cap rate), not $300,000. That 2% of growth is worth $100,000 of price. When you see prime assets trading at cap rates that look irrationally low, growth expectations, real or imagined, are usually the explanation.
Worked Example
A duplex generates $36,000 in annual rent. Vacancy and operating expenses (tax, insurance, maintenance, management) total $12,000, leaving $24,000 of NOI. The asking price is $300,000. Cap rate is $24,000 / $300,000 = 8.0%. Comparable duplexes in the area recently sold at 7% cap rates, implying this property\'s market value is $24,000 / 0.07 = $342,857, so the ask looks $42,857 light, or the NOI is overstated. With 2% expected NOI growth and an 8% required return, the growth-adjusted value is $24,000 / (0.08 - 0.02) = $400,000.
Cap Rate Benchmarks by Property Type
| Property type | Typical cap rate range | Why |
|---|---|---|
| Core multifamily, prime market | 4 to 5.5% | Stable demand, low vacancy risk |
| Suburban office | 6 to 8% | Remote-work vacancy uncertainty |
| Neighborhood retail | 6 to 8% | Tenant credit risk varies |
| Value-add / heavy rehab | 8 to 12%+ | Execution risk priced in |
Ranges move with interest rates: cap rates generally sit a few points above the 10-year Treasury, the spread being the property risk premium. When that spread compresses unusually tight, either growth expectations are euphoric or a correction is coming. For the full deal picture, our rental property calculator models the financed cash flows, our cash-on-cash return calculator isolates your cash yield, and our commercial lease calculator sizes the income side of commercial deals.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is cap rate in real estate?
Cap rate, short for capitalization rate, is a property's net operating income divided by its value, expressed as a percentage. A property earning $24,000 of NOI valued at $300,000 has an 8% cap rate. It is the real estate equivalent of an earnings yield: the all-cash annual return the property would produce at its current price.
What is the cap rate formula?
Cap rate = net operating income / property value. Rearranged, it values property too: value = NOI / cap rate. A property with $24,000 NOI in a market where similar assets trade at a 6% cap rate is worth $400,000. The three variables form a triangle: know any two and the calculator solves the third.
What is a good cap rate?
It depends on the market and risk. Core properties in prime locations trade at 4% to 6%; riskier or secondary-market assets trade at 7% to 10% or more. Higher cap rate means higher expected return and higher perceived risk, exactly like bond yields. Compare against recent sales of similar properties in the same market, not against a national average.
How does cap rate relate to risk?
Cap rate is the market's risk price. A 4% cap rate means investors accept a 4% all-cash return because the asset feels safe: prime location, strong tenant, long lease. A 9% cap rate means they demand 9% to compensate for vacancy risk, weak tenants, or a rough neighborhood. When cap rates rise across a market, prices are falling; when they compress, prices are rising.
Does cap rate include mortgage payments?
No, and that is deliberate. Cap rate uses net operating income before debt service, so it measures the property itself, independent of how you finance it. Two buyers paying different interest rates see the same cap rate on the same property. Financing effects belong in cash-on-cash return, which is why investors look at both metrics together.
What is net operating income (NOI)?
NOI is the property's annual income after operating expenses but before mortgage payments, depreciation, and income tax: rental income minus vacancy loss, minus property tax, insurance, maintenance, management, and utilities the owner pays. A $36,000 rent roll with $12,000 of operating expenses produces $24,000 of NOI. Garbage in, garbage out: inflated rents or understated expenses produce a fantasy cap rate.
How do you adjust cap rate for growth?
The Gordon growth version: value = NOI / (cap rate - growth rate). If NOI grows 2% a year and investors require an 8% total return, the property is worth NOI / (8% - 2%) = NOI / 6%, more than the flat 8% cap rate implies. Growth expectations explain why hot markets trade at low cap rates: buyers pay up today for rising income tomorrow. This calculator includes the growth-adjusted valuation.
Why do cap rates differ between cities?
Because risk and growth differ. Gateway cities with strong job growth and constrained supply trade at low cap rates; investors accept lower current yield for appreciation and safety. Tertiary markets with flat populations trade higher. Interest rates shift every market's baseline: when Treasuries yield 5%, few investors accept a 4% cap rate, so prices adjust downward until yields compete.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures the property debt-free: NOI over price. Cash-on-cash measures your actual cash invested: annual cash flow after mortgage payments over your down payment and closing costs. Borrowing magnifies cash-on-cash above the cap rate when borrowing costs less than the cap rate, and crushes it when rates exceed it. Positive borrowing is the whole game in financed deals.
Can cap rate be negative?
Mathematically yes, if NOI is negative, but nobody quotes it that way. A money-losing property is valued on potential, land value, or redevelopment option value, not on a negative yield. If your NOI input produces a negative cap rate, the property needs a turnaround story, and the valuation belongs in a DCF or comparable-sales analysis instead.