Cap Rate Calculator
Cap rate is the property's annual net operating income divided by its purchase price — the unleveraged yield a buyer earns at today's NOI.
Result
Cap rate
6.66%
NOI
$33,300
Effective gross income: $51,300 · Gross income: $54,000
How to read cap rate
A 6% cap rate means the property generates 6% of its purchase price as NOI in a year — before any financing. Lower cap rates mean buyers are paying more per dollar of income (often in stronger markets); higher cap rates mean buyers demand a higher yield, often in less stable submarkets.
Always compare apples to apples. Cap rates from sellers and brokers frequently use pro-forma NOI (best case). Re-underwrite with actual T-12 numbers and your own opex assumptions.
Frequently asked questions
What's a good cap rate?
There's no universal answer — cap rate is a price, not a quality score. As of 2024–2025, rough ranges are class A multifamily 5.0–5.5%, class B multifamily 6.0–7.5%, class C multifamily 7.5–9.0%, stabilized NNN retail 6.5–8.0%, SFR rentals 5.5–8.0%, and suburban office 8.0%+. What matters is the spread vs. the 10-year Treasury (typically 250–400 bps for institutional quality) and the comp set in your specific market and asset class.How is cap rate different from cash-on-cash return?
Cap rate is unleveraged: NOI ÷ purchase price. It assumes you pay cash. Cash-on-cash return is leveraged: annual cash flow (after debt service) ÷ cash invested. The same property can have a 6% cap rate and a 12% cash-on-cash return because leverage amplifies returns when the cap rate exceeds the loan constant.Why is my cap rate different from the broker's cap rate?
Brokers typically present a pro-forma cap rate using best-case NOI: market rent assumptions, optimistic vacancy, and trimmed operating expenses. Your re-underwritten cap rate uses actual trailing-12 collected income, market vacancy, and a realistic operating-expense ratio (often 40–50% of EGI). The gap is often 50–150 bps — and the gap is where the negotiation happens.Does cap rate include the mortgage payment?
No. Cap rate is NOI ÷ price, and NOI is computed before debt service. This is intentional — it makes cap rate comparable across deals regardless of how each buyer finances. Once leverage is layered on, the relevant metrics become DSCR, cash-on-cash return, and IRR.How do I calculate NOI for a cap rate?
NOI = effective gross income − operating expenses. Effective gross income is gross potential rent minus vacancy and credit loss, plus other income (parking, pet rent, RUBS, late fees that actually recur). Operating expenses include property taxes, insurance, property management, maintenance, capital expenditures reserves, HOA fees, and any owner-paid utilities. NOI explicitly excludes mortgage P&I, depreciation, and capital improvements.Should cap rate go up or down with interest rates?
Up. When risk-free rates rise, investors demand higher cap rates to maintain a spread over Treasuries, which means they pay less per dollar of NOI. The 2020–2023 cycle compressed cap rates as rates fell; the 2022–2024 cycle expanded them as rates rose. A cap rate that doesn't move with the rate environment is usually a sign of stale comps or sticky seller pricing.
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