What is the Cap Rate Calculator?

The Cap Rate Calculator computes capitalization rate, a key metric for valuing income-producing properties based on Net Operating Income relative to property value.

How is cap rate calculated?

Cap rate equals Net Operating Income (NOI) divided by property value or purchase price. Higher cap rates indicate higher returns but often higher risk.

What is a good cap rate?

Good cap rates vary by property type, location, and condition. Generally, 4-6% for stable markets, 6-8% for secondary markets, 8%+ for higher-risk properties.

What are the limitations of cap rate?

Cap rate doesn't account for financing, future rent growth, capital expenditures, or tax benefits. Use it with other metrics for complete analysis.

Free Calculator

Cap Rate Calculator

Calculate capitalization rate for investment properties. Find property value from NOI or required NOI for a target cap rate.

Cap Rate Calculator

Enter property details

Net Operating Income (Annual)

Annual income minus operating expenses

Property Value / Purchase Price

Current market value or asking price

Target Cap Rate

Your desired cap rate for analysis

Cap Rate Analysis

Cap Rate8.00%

Monthly NOI$2,000.00

Target Cap Rate Analysis

Property Value at 8% Cap$300,000.00

Required NOI for 8% Cap$24,000.00

This property meets your 8% target cap rate

How It Works

1. Enter NOI

Input your annual Net Operating Income (rental income minus operating expenses).

2. Add Property Value

Enter the property's market value or asking price for calculation.

3. Analyze Results

See the cap rate and compare against your target to evaluate the investment.

Understanding Cap Rate

The Cap Rate Formula

Cap Rate = (NOI / Property Value) x 100

Cap rate measures a property's potential return independent of financing.

What's a Good Cap Rate?

Core Markets (Low Risk)4-6%

Secondary Markets6-8%

Value-Add Properties8-10%+

Higher cap rates typically indicate higher risk/return potential.

Frequently Asked Questions

Understanding Capitalization Rate in Real Estate

The capitalization rate, commonly known as cap rate, is one of the most important metrics in real estate investing. It provides a quick way to assess the potential return of an investment property independent of how it's financed. Our free cap rate calculator helps you evaluate properties, compare investments, and determine fair market value based on income potential.

How Cap Rate Helps Evaluate Investments

Cap rate serves multiple purposes for real estate investors. First, it allows you to compare properties of different sizes and prices on an equal basis. A $500,000 property with a 6% cap rate and a $200,000 property with a 6% cap rate offer the same relative return on investment. Second, cap rate helps you quickly assess whether a property meets your investment criteria without getting into detailed financing calculations.

The Relationship Between Cap Rate and Risk

Generally, higher cap rates indicate higher risk or less desirable locations, while lower cap rates suggest lower risk and better locations. Class A properties in prime markets may trade at 4-5% cap rates, while Class C properties in secondary markets might trade at 8-10% or higher. Understanding this relationship helps you evaluate whether you're being adequately compensated for the risk you're taking.

Cap Rate Calculations for Real Estate Exams

Cap rate is a fundamental concept tested on real estate licensing exams across all states. You'll need to know how to calculate cap rate from NOI and property value, how to find property value given NOI and cap rate, and how to interpret what different cap rates mean. Practice these calculations regularly to build speed and accuracy for exam day.