Calculate capitalization rate — net operating income divided by property value
What This Means For You
Get a personalized explanation of these results — what they actually mean for your situation, and how small changes would affect them.
How it works
Capitalisation rate expresses a property net operating income as a percentage of its value, giving the unlevered yield. It is how commercial real estate is priced, and rearranging it converts an income figure into a valuation.
Cap rate = NOI / Property value × 100 Value = NOI / Cap rate
NOInet operating income: effective gross income less operating expensesProperty valuepurchase price or current market value
- Vacancy loss: 132,000 × 0.05 = 6,600
- Effective gross income: 132,000 − 6,600 = 125,400
- NOI: 125,400 − 41,400 = 84,000
- Cap rate: 84,000 / 1,200,000
- NOI excludes mortgage payments, depreciation, and income tax. Including debt service is the single most common error and makes properties look artificially cheap.
- Include a capital-expenditure reserve (commonly 5-10% of gross rent) in expenses. Sellers routinely omit it to inflate the advertised cap rate.
- Cap rate moves inversely to price. At fixed NOI, a rate rising from 6% to 7% cuts value by about 14%, which is how rate cycles reprice entire portfolios.
- Rates are only comparable within the same market and asset class. A 4% cap in a prime metro and an 8% cap in a secondary market are pricing different risk, not different quality of deal.
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Frequently Asked Questions
Yes. Cap Rate Calculator costs nothing, needs no account, and runs right in your browser. There is no paywall, no watermark on the results, and no limit on how many times you can run the numbers.
Cap Rate Calculator uses the standard formula for this kind of calculation, so the output is only as good as the figures you type in. Rates, fees, and rules in finance shift over time, and we review the underlying assumptions on a regular schedule; check the "Last reviewed" date above for the most recent pass. Spotted something off? There's a feedback button in the bottom-right corner.
Treat the output of Cap Rate Calculator as a starting point, not final advice. Tax filings, loan approvals, insurance claims, property deals, and legal matters all depend on details a calculator cannot see: your full financial picture, local rules, and the specifics of your paperwork. Run the numbers here, then confirm anything consequential with an accountant, lawyer, or licensed advisor.