Cap Rate Calculator
Find the capitalization rate for any commercial property — or work backward to find your maximum purchase price.
Cap Rate Calculator
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Income after operating expenses, before debt & tax
Calculation Summary
What Is Cap Rate and Why It Matters
Cap rate (capitalization rate) is the most common shorthand investors use to compare commercial properties at a glance. It tells you the annual return a property would generate if you bought it in all cash, based purely on its net operating income relative to the purchase price. It's not a complete picture of your actual return — it ignores financing, taxes, and future appreciation — but it's the fastest way to compare two properties or sanity-check a listing price against the market.
The Formula
Cap Rate = Net Operating Income (NOI) / Purchase Price × 100%Worked Commercial Property Example
Consider a hypothetical 24-unit multifamily property.
- Purchase price: $2,800,000
- Net Operating Income (NOI): $227,200 (see how we calculated this property's NOI)
Calculation: Cap Rate = $227,200 (NOI) / $2,800,000 (Price) = 8.11%
The 8.11% represents your unleveraged return if you bought the building in all cash. But most investors use debt. After calculating your Cap Rate, you would typically compare it against mortgage rates and then use the Cash-on-Cash Return calculator or the full Deal Analyzer tool to see your actual return on invested equity.
Common Cap Rate Pitfalls & Limitations
1. Ignores Financing: Cap rate is an unleveraged metric. It does not reflect mortgage interest rates, amortization, or leveraged returns. Always evaluate Alongside Cash-on-Cash Return and DSCR.
2. Pro-Forma vs. In-Place T12: Broker listing packages often use aggressive pro-forma assumptions. Always underwrite based on audited trailing 12-month (T12) operating statements.
Frequently Asked Questions
What's a good cap rate for commercial real estate?
It depends heavily on asset class and location. Multifamily in a strong metro might trade at 4-5%, while a single-tenant net-lease property in a secondary market might trade at 7-9%. Lower cap rates generally signal lower perceived risk (and lower yield); higher cap rates signal higher risk or yield.
What's the difference between cap rate and cash-on-cash return?
Cap rate assumes an all-cash purchase and ignores your financing. Cash-on-cash return accounts for your actual cash invested (after a loan), so it reflects your real leveraged return.
Does cap rate account for financing?
No. Cap rate is calculated independent of how the deal is financed, which is exactly why it's useful for comparing properties apples-to-apples — regardless of each buyer's loan terms.
Can I use cap rate to value a property I already own?
Yes — plug in your property's current NOI and an estimated market value (or ask a broker for comparable sales) to see roughly where your cap rate sits relative to the market.
US Cap Rate Benchmarks Guide (2026)
Explore national capitalization rate ranges across property types and metropolitan market tiers.
Need Cap Rate, NOI, DSCR, and Cash-on-Cash all together?
Use the Deal Analyzer tool to run all core CRE metrics from a single set of inputs with stress testing.