Cap Rate Calculator
Calculate capitalization rate from gross rental income, operating expenses, and property value — or reverse-solve for property value or required NOI from a target cap rate.
Cap Rate (%) = (Gross Income − Operating Expenses) ÷ Property Value × 100Adjust Variables
Interactive Step-by-Step Calculation Proofs
View how variables resolve algebraically down to peer-reviewed standard outputs.
Why Use This Calculator
Cap rate is the fastest way to screen and compare income properties, because it strips out financing entirely — two investors with completely different mortgages get the same cap rate on the same property at the same price. That's also its main limitation: it says nothing about appreciation, financing cost, or the capital expenditures a property might need. This calculator handles the itemized expense breakdown that goes into NOI, and reverse-solves for property value or required NOI when a target cap rate is the known variable instead.
Mathematical Formula Explanation
Calculated standard benchmarks are based on direct functional dependencies. The primary calculation logic follows this formula:
Cap Rate (%) = NOI ÷ Property Value × 100Cap rate measures a property's unlevered annual return: net operating income divided by property value. It ignores financing, appreciation, and capital expenditures entirely, so it's a snapshot of the property's income performance independent of how it's paid for.
Worked Examples (Step-by-Step)
These examples show cap rate calculated from an itemized expense breakdown, and the reverse-solved value and NOI modes.
Example 1: Cap Rate From an Itemized Expense Breakdown
“A property collects $120,000 in annual gross rental income. Operating expenses are $8,000 property tax, $2,500 insurance, $6,000 maintenance, $9,600 property management, and a 5% vacancy allowance. The property is valued at $1,500,000.”
- GROSSINCOME: 120,000
- PROPERTYTAX: 8,000
- INSURANCE: 2,500
- MAINTENANCE: 6,000
- PROPERTYMANAGEMENT: 9,600
- VACANCYPCT: 5
- PROPERTYVALUE: 1,500,000
- NOI: 87,900
- OPERATINGEXPENSES: 32,100
- CAPRATE: 5.86
Example 2: Solving for Property Value at a Target Cap Rate
“An investor wants a 6% cap rate on a property generating $90,000 in NOI. What property value does that imply?”
- NOIFORVALUE: 90,000
- TARGETCAPRATEFORVALUE: 6
- IMPLIEDPROPERTYVALUE: 1,500,000
Example 3: Solving for Required NOI at a Target Cap Rate
“A $1,500,000 property needs to hit a 6% cap rate. What NOI is required?”
- PROPERTYVALUEFORNOI: 1,500,000
- TARGETCAPRATEFORNOI: 6
- REQUIREDNOI: 90,000
U.S. Cap Rate Ranges by Property Type (H2 2025)
As of 2025-12| Property Type / Class | Average Cap Rate | Notes |
|---|---|---|
| Multifamily — Class A | 4.74% | National average; core, stabilized assets in primary markets trade lower still.CBRE U.S. Cap Rate Survey, H2 2025 |
| Multifamily — Class B / C | 4.92% / 5.38% | Value-add assets price higher than Class A to compensate for renovation risk and lower current income. |
| Office — Class A | 8.4% | Office remains the highest-cap-rate major sector, reflecting weaker post-pandemic demand. |
| Office — Class B / C | 8.68% / 9.02% | Lower-occupancy Class C office trades at the widest spread of any segment in the survey. |
| Industrial — Class A | ~5.0% | Broader industrial sector runs roughly 5.0–7.0% depending on class and location. |
Common Mistakes & Edge Cases
- Including mortgage payments (debt service) in operating expensesCap rate is explicitly an unlevered metric — it's meant to isolate the property's own income performance from how the buyer chose to finance it. Subtracting mortgage interest or principal from NOI conflates cap rate with cash-on-cash return and produces a lower, apples-to-oranges number that can't be compared against market cap rate surveys.
- Using pro-forma or projected NOI instead of trailing actual NOIListing brokers often present a 'pro-forma' NOI that assumes rents are pushed to market rate or vacancy drops to zero — figures that haven't actually happened yet. Calculating cap rate off projected NOI instead of the trailing 12 months of actual income overstates the cap rate an investor will really achieve on day one.
- Comparing cap rates across property classes or markets as if they were interchangeableAn 8.4% Class A office cap rate and a 4.74% Class A multifamily cap rate aren't a 'multifamily is overpriced' signal — they're pricing two different risk profiles and demand environments. Only compare a property's cap rate against the same property type and class, ideally in the same metro, per the benchmark table above.