Cap Rate Calculator
Calculate the capitalization rate (cap rate) of a real estate investment property to evaluate its potential return on investment.
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Formula
Cap Rate = NOI ÷ Current Market Value × 100
Where Net Operating Income (NOI) is calculated as:
NOI = Gross Rental Income × (1 − Vacancy Rate) − Operating Expenses
Operating expenses include property taxes, insurance, maintenance, property management fees, and utilities — but exclude mortgage payments, depreciation, and income taxes.
Assumptions & References
- Cap rate is a pre-financing metric — it does not account for mortgage debt or leverage.
- A higher cap rate implies higher potential return but also higher perceived risk.
- Typical cap rates range from 4%–10% depending on asset class, location, and market conditions (CBRE, JLL market reports).
- NOI excludes capital expenditures (CapEx); for a more conservative analysis, deduct CapEx reserves from NOI.
- Market value used should reflect current appraised or listed value, not original purchase price, for ongoing analysis.
- Reference: Investopedia — Capitalization Rate; CBRE Cap Rate Survey; National Council of Real Estate Investment Fiduciaries (NCREIF).