Free tool
Cap rate calculator
Enter any two of net operating income, property value and cap rate, and get the third — plus what the same income is worth half a point either way. No sign-up.
Updated
Inputs
Revenue minus operating expenses, before debt service and capital spending.
Cap rate
6.50%
Value
$10,000,000
NOI
$650,000
Value per $1 of NOI
15.38x
| Cap rate | Value | Change |
|---|---|---|
| 5.50% | $11,818,182 | +$1,818,182 |
| 6.00% | $10,833,333 | +$833,333 |
| 6.50% | $10,000,000 | — |
| 7.00% | $9,285,714 | -$714,286 |
| 7.50% | $8,666,667 | -$1,333,333 |
For illustration, not advice. A cap rate is one year of unlevered income over value: it ignores debt, rent growth, capital spending and the sale. Use the same NOI definition — trailing, in-place or projected — that the cap rate you compare against was built on.
The cap rate formula
A cap rate, or capitalization rate, is one year of net operating income (NOI) divided by the property’s value or price. It is the unlevered yield the property earns in a year. The same formula solves three ways:
- Cap rate = NOI ÷ value
- Value = NOI ÷ cap rate
- NOI = value × cap rate
NOI is revenue minus operating expenses, before debt service, capital expenditures and income tax. Because it ignores financing, the cap rate is the same whether a buyer pays cash or borrows most of the price.
A worked example
A property produces $650,000 of NOI and is priced at $10,000,000. Its cap rate is $650,000 ÷ $10,000,000 = 6.50%.
Go the other way: if similar properties trade at a 6.5% cap rate, $650,000 of NOI is worth $650,000 ÷ 0.065 = $10,000,000. And a $10,000,000 property at a 6.5% cap rate implies $10,000,000 × 0.065 = $650,000 of NOI.
| Cap rate | Calculation | Value | Change vs 6.5% |
|---|---|---|---|
| 5.5% | $650,000 ÷ 0.055 | $11,818,182 | +$1,818,182 |
| 6.0% | $650,000 ÷ 0.060 | $10,833,333 | +$833,333 |
| 6.5% | $650,000 ÷ 0.065 | $10,000,000 | — |
| 7.0% | $650,000 ÷ 0.070 | $9,285,714 | −$714,286 |
| 7.5% | $650,000 ÷ 0.075 | $8,666,667 | −$1,333,333 |
What a cap rate leaves out
A cap rate is a snapshot of one year. It says nothing about the loan, rent growth, capital spending or the sale — which is why sponsors read it next to coverage and returns on equity. Check the loan with the DSCR and loan sizing calculator, the yield on your equity with the cash-on-cash return calculator, and the whole hold with the IRR and equity multiple calculator.
Going-in vs exit cap rate
The going-in cap rate is year-one NOI over the purchase price. The exit cap rate is the one you assume a buyer pays when you sell, applied to NOI at sale. Underwriters often set the exit cap above the going-in cap to leave room for an older building and a different rate environment. The table above shows why that assumption deserves scrutiny: half a point moves value by hundreds of thousands of dollars on a property this size.
From a calculator to a deal
In CREAssets the underwriting workbook carries the rent roll and T-12 into NOI, a cash-flow model and a sale sheet, with exit value and sensitivities in the header. On the free stage you fill the workbook by hand; AI parsing of the OM, rent roll and T-12 is on the Platform plan. See AI underwriting.
Related calculators
- NOI calculator
From gross potential rent, vacancy, other income and operating expenses: effective gross income, NOI and the expense ratio.
- DSCR and loan sizing calculator
From NOI, loan amount, rate and amortization: debt service, DSCR, debt yield and the maximum loan at your minimum DSCR.
- Break-even occupancy calculator
Operating expenses plus debt service over gross potential income — and the cushion against today’s occupancy.
- Gross rent multiplier (GRM) calculator
Price over gross annual rent, or the price a GRM implies — a quick screen before you underwrite NOI.
Cap rate questions
How do you calculate a cap rate?
Divide one year of net operating income by the property’s value or price. $650,000 of NOI on a $10,000,000 property is a 6.50% cap rate. Rearranged, value = NOI ÷ cap rate and NOI = value × cap rate.
Does the cap rate include the mortgage?
No. NOI is before debt service, so the cap rate is the same whether the buyer pays cash or borrows. To see the effect of the loan, use the DSCR calculator for coverage and the cash-on-cash calculator for the yield on equity.
What is a good cap rate?
There is no single good number. Cap rates differ by property type, market, building quality, lease terms and interest rates. A lower cap rate usually reflects lower perceived risk or higher expected growth, not a better deal. Compare only similar properties, on the same NOI definition.
Should I use trailing or projected NOI?
Use the same NOI the comparison was built on. Market cap rates are often quoted on trailing or in-place NOI; applying them to a pro forma NOI overstates value. Say which NOI you used whenever you quote a cap rate.
Why does a small cap rate change move value so much?
Value is NOI divided by the cap rate, so the cap rate sits in the denominator. On $650,000 of NOI, moving from 6.5% to 6.0% adds about $833,333 of value; moving to 7.0% removes about $714,286.
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