Cap Rate Calculator
Enter NOI and a property's value below to instantly get the capitalization rate.
What Is Cap Rate?
Cap rate (capitalization rate) is NOI divided by a property's current market value -- the estimated rate of return an all-cash buyer would earn from the property's own operating income alone, ignoring financing entirely. It's the most common single number investors use to quickly compare unlike properties.
Cap Rate = NOI ÷ Current Market Value. A cap rate of 8% means the property's NOI is 8% of its value in a given year.
Worked example
A property has $32,000/year NOI and a current market value of $400,000.
Cap Rate = $32,000 ÷ $400,000 = 8.0%
The same $32,000 NOI on a $250,000 property (same income, lower value -- a smaller or less competitive market):
Cap Rate = $32,000 ÷ $250,000 = 12.8% -- the lower-priced property shows a higher cap rate for the identical income.
Common mistake
Treating a higher cap rate as simply "a better deal." A higher cap rate usually means the market is pricing in more risk -- a less desirable location, more deferred maintenance, or more uncertain future rent growth -- not a discount with no downside.
Keep going
- Cap rate is only as accurate as the NOI that feeds it; the NOI calculator builds that number from gross rental income and real operating expenses first. NOI Calculator
- Cap rate and DSCR both start from NOI but answer different questions -- cap rate is a valuation ratio, DSCR is what a lender checks to see whether the property covers its own debt payments. DSCR Calculator
Frequently Asked Questions
What is a good cap rate?
There's no universal good cap rate -- it depends on location, property class, and risk. Corporate Finance Institute notes a higher cap rate (for example 10%) is generally seen as more attractive than a lower one (for example 3%), but desirable, low-risk locations command lower cap rates and riskier properties command higher ones. A 10% cap rate implies roughly 10 years to recover the purchase price from NOI alone.
Is cap rate based on purchase price or market value?
The standard definition uses current market value, not purchase price. The two are the same on the day you buy, but a property's market value can move afterward while your purchase price obviously can't -- so an ongoing cap rate on a property you already own should use its current value, not what you originally paid.
Why does a higher cap rate mean more risk, not just more return?
The market prices risk into cap rate. A property in a stable, in-demand area trades at a lower cap rate because buyers accept a lower return for lower risk; a property in a less certain market has to offer a higher cap rate to attract the same buyers. A cap rate that looks unusually high for its market is often a signal to look harder at why, not just a bargain.
Does cap rate account for financing?
No -- cap rate is unlevered, meaning it ignores how the property is financed entirely. It's a way to compare properties on their own operating performance. Cash-on-cash return and DSCR are where financing enters the picture.
How is cap rate different from cash-on-cash return?
Cap rate divides NOI by the whole property's value, ignoring your financing. Cash-on-cash return divides your actual cash flow (after debt service) by only the cash you personally put in. The same property can have a modest cap rate but a strong cash-on-cash return if it's financed well, or the reverse.
This is a neutral calculation based on the numbers you enter -- not investment advice.
Related Calculators
- Cash-on-Cash Return Calculator — Return Metrics
- Rental Yield Calculator — Return Metrics
- Real Estate ROI Calculator — Return Metrics
- NOI Calculator — Income & Cash Flow