Capitalization Rate (Cap Rate)
Calculate property capitalization rates based on NOI. Fast, free, and fully client-side.
Calculator Inputs
Net Operating Income ($/year)
Property Value/Price ($)
Cap Rate (%)—
How the Capitalization Rate (Cap Rate) Works
The Capitalization Rate (Cap Rate) evaluates the unleveraged rate of return on commercial or residential real estate investments based on property net operating income.
Formula
Cap Rate (%) = (Net Operating Income (NOI) / Property Purchase Price) × 100
NOI equals gross rental income minus all operating expenses (excluding mortgage interest and principal).
Calculation Example
A commercial property purchased for $1,000,000 generating $75,000 in annual Net Operating Income has a Cap Rate of (75,000 / 1,000,000) × 100 = 7.5%.
Frequently Asked Questions
What is considered a healthy Cap Rate?
Cap rates generally range between 4% and 10%, with lower cap rates reflecting lower risk/prime locations and higher rates reflecting higher yield/risk profiles.