Cap Rate Calculator
Calculate Capitalization Rate (Cap Rate) and Net Operating Income (NOI) for commercial and residential real estate assets.
Last verified: September 2026Inputs & Parameters
Calculation Results
Cap rate measures asset return unleveraged (excluding mortgage debt service).
Capitalization Rate (Cap Rate) and Commercial Valuation
The Capitalization Rate (Cap Rate) is the premier metric used by commercial real estate investors to evaluate property yield and risk independent of mortgage financing terms. It expresses the ratio between net operating income and property acquisition cost.
Core Mathematical Formulas
- Capitalization Rate:
Cap Rate (%) = (Net Operating Income / Property Value) × 100 - Implied Property Valuation:
Property Value = Net Operating Income / (Target Cap Rate / 100) - Net Operating Income (NOI):
NOI = Gross Potential Rent - Vacancy Loss - Operating Expenses
Worked Example
An apartment building generates $140,000.00/year gross rent with a 5% vacancy allowance and $45,000.00/year operating expenses, listed for $1,250,000.00:
1. Effective Gross Income = $140,000.00 × 0.95 = $133,000.00
2. Net Operating Income (NOI) = $133,000.00 - $45,000.00 = $88,000.00
3. Capitalization Rate = ($88,000.00 / $1,250,000.00) × 100 = 7.04%
Assumptions & Limitations
Cap rate analysis deliberately excludes debt financing service (principal and interest mortgage payments) and investor income tax depreciation. Higher cap rates generally indicate higher perceived market or tenant credit risk.