Cap Rate Calculator
Get your cap rate, see it against the typical range for your property type, and avoid underwriting a seller’s optimistic pro-forma numbers.
Written by Dorothy Ibrahim, 10+ years in banking & finance
Loading calculator…
How we calculate this
This calculator computes a property’s capitalization rate — its annual net operating income as a percentage of its value — and places it against the typical market range for the property type. Cap rate is the standard unlevered yield measure for income property: it ignores any loan, so two buyers with different financing see the same number. The tool also runs the math in reverse, showing what the income stream is worth at a target market cap rate, and warns when the NOI you entered is a seller’s pro-forma rather than in-place reality.
The formulas
- Effective gross income (EGI)
- gross rental income × (1 − vacancy %)
- Net operating income (NOI)
- effective gross income − operating expensesOperating expenses exclude debt service — cap rate is unlevered by definition. If NOI is zero or negative, no cap rate is meaningful.
- Cap rate
- net operating income ÷ property value (or purchase price)
- Implied value at a target cap rate
- net operating income ÷ target cap rateThe reverse calculation: what this income stream is worth if the market prices it at your target cap.
Worked example
- Say a $1,000,000 multifamily property grosses $95,000/yr in rent with 5% vacancy and $25,000/yr of operating expenses (in-place numbers).
- Effective gross income = $95,000 × (1 − 0.05) = $90,250.
- NOI = $90,250 − $25,000 = $65,250.
- Cap rate = $65,250 ÷ $1,000,000 = 6.53% (rounded).
- That sits above the typical 4.5–6% multifamily range — a higher yield, which in practice usually signals higher risk, a weaker location, or a below-market price worth investigating.
- In reverse: at a 6% target cap, the same $65,250 NOI implies a value of $65,250 ÷ 0.06 = $1,087,500.
Rates, benchmarks & sources
- Typical cap-rate bands by property type: multifamily 4.5–6%, industrial 5.5–7%, Class-A office 6–8%, NNN net-lease 5–8% by tenant credit; retail varies too widely for a single band — 2025–26 market transaction ranges (rule of thumb, not an authoritative constant)
- Cap rate = NOI ÷ value; NOI = effective gross income − operating expenses, before debt service — Standard income-capitalization definition (appraisal convention)
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- Cap rate ignores financing entirely — it says nothing about your cash flow after a mortgage. For the return on the cash you actually invest, use the Rental Property ROI (cash-on-cash) tool.
- It is a single-year snapshot: rent growth, lease rollover, capital expenditures, and exit value are all outside the formula.
- The market bands are broad national rules of thumb for 2025–26; cap rates vary block by block, by asset class and condition, and move with interest rates — recent comparable local sales are the real benchmark.
- The output is only as honest as the NOI you enter: understated expenses or optimistic rents inflate the cap rate mechanically.
- Capital reserves, property management (if you self-manage today), and deferred maintenance are commonly omitted from seller expense figures — adding them lowers NOI and the cap rate.
Frequently asked questions
What is a good cap rate?
There is no universally "good" number — a cap rate is a price for risk, and the honest answer is a range by property type. As 2025–26 market rules of thumb: multifamily typically trades at 4.5–6%, industrial 5.5–7%, Class-A office 6–8%, and NNN net-lease 5–8% depending on tenant credit; retail varies too widely to band. Higher cap = more yield but usually more risk or a weaker location; lower cap = a safer, pricier asset. Compare against recent local sales, not a national figure.
What is the difference between cap rate and cash-on-cash return?
Cap rate is the property-level yield with no loan: NOI divided by value, identical for every buyer. Cash-on-cash is your personal return after financing: annual cash flow left after mortgage payments, divided by the cash you actually put in. A property with a 6.5% cap rate can produce a 2% — or a 12% — cash-on-cash return depending on leverage. Use cap rate to compare properties; use the Rental Property ROI tool to see your own return.
What is the difference between in-place and pro-forma NOI?
In-place NOI uses the rents actually being collected today and the trailing twelve months of real expenses. Pro-forma NOI is the seller’s projection — rents after planned raises, vacancies filled, expenses trimmed. Sellers market on pro-forma because it makes the cap rate look better at their asking price. Underwriting on pro-forma means paying today for improvements you will have to deliver yourself; verify against the actual rent roll and trailing-12 statements.
Should my mortgage payment be included in operating expenses?
No — debt service is deliberately excluded. Cap rate measures what the property itself earns, independent of how any particular buyer finances it, which is what makes it comparable across deals. Operating expenses means taxes, insurance, maintenance, management, utilities you cover, and similar running costs. Once you want the after-loan picture, that is cash-on-cash territory, not cap rate.
How does the implied-value (reverse) calculation work?
Instead of asking "what yield does this price produce?", it asks "what price does this income justify?" Divide NOI by a target market cap rate: the default example’s $65,250 NOI at a 6% cap implies $1,087,500. Investors use this to sanity-check an asking price — if the seller wants $1.2 million for income the market caps at 6%, the gap is the negotiation. The answer is only as good as the cap rate you assume, so anchor it to recent comparable sales.
Related calculators
themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions. Rates shown are estimates; actual offers depend on lender underwriting.