Cap Rate Calculator

Calculate capitalization rate and estimate property value from NOI. Two calculators in one.

The capitalization rate (cap rate) is the most common way to compare commercial real estate investments at a glance. It expresses a property's net operating income as a percentage of its value, giving you an unlevered yield that's independent of financing. Whether you're evaluating an acquisition, pricing a listing, or benchmarking a portfolio, cap rate is where the conversation starts.

Calculate Cap Rate

Net Operating Income (NOI) Annual NOI (income minus operating expenses)

Property Value / Purchase Price Current market value or acquisition price

Capitalization Rate

Estimate Property Value

Reverse calculation: what is this property worth at a given cap rate?

Net Operating Income (NOI)

Target Cap Rate (%) Market cap rate for this property type

Estimated Property Value

What Is Cap Rate?

Cap rate measures the relationship between a property's income and its value. It answers: if you bought this property with all cash (no mortgage), what annual return would the income stream represent?

Cap Rate = Net Operating Income / Property Value × 100

A property generating $100,000 in NOI with a $2 million value has a 5.0% cap rate. That means the income stream represents a 5% return on the total investment, before any financing costs.

Cap rate is an unlevered metric. It tells you nothing about debt service, cash-on-cash returns, or the effect of financing. Two identical properties at the same cap rate will produce very different investor returns depending on leverage.

Cap Rate as a Valuation Tool

Cap rate works in reverse too. If you know the NOI and the market cap rate for that property type and location, you can estimate value:

Property Value = NOI / Cap Rate

This is the income approach to valuation, one of the three methods appraisers use. A property with $500,000 in NOI in a market where similar properties trade at 5.5% cap rates has an estimated value of approximately $9.1 million.

Small cap rate movements create large value swings. That same $500,000 NOI property is worth $10 million at a 5.0% cap, but only $8.3 million at a 6.0% cap. A single percentage point shift in cap rate moved the value by $1.7 million.

Typical Cap Rates by Property Type

Cap rates vary by property type because they reflect the perceived risk and stability of the income stream. These ranges are general benchmarks and shift based on market conditions, location, and property quality.

Property Type	Typical Cap Rate Range	Why
Multifamily (Class A)	4.0% – 5.5%	Stable demand, lower turnover costs, agency financing available
Multifamily (Class B/C)	5.0% – 7.0%	Value-add opportunity, higher management intensity
Industrial / Warehouse	5.0% – 7.0%	Strong demand from e-commerce, long lease terms
Self-Storage	5.5% – 7.5%	Recession-resistant, but management-intensive
Retail (NNN)	5.5% – 7.5%	Credit-dependent. Strong national tenants = lower cap
Office (Suburban)	6.5% – 9.0%	Remote work impact, longer lease-up, higher TI costs
Hospitality	7.0% – 10.0%	Revenue volatility, management complexity

These ranges reflect general market conditions. Cap rates in gateway cities (New York, San Francisco, Los Angeles) often compress well below these ranges, while tertiary markets typically trade at wider cap rates.

What Moves Cap Rates

Cap rates are driven by two forces: interest rates and investor demand.

When interest rates rise, cap rates tend to follow. Higher borrowing costs reduce the amount investors can pay for a given income stream. When rates drop, more capital chases yield, compressing cap rates and pushing property values up.

Investor demand also matters independently. Strong institutional interest in a property type (like industrial during the e-commerce boom) can compress cap rates even when rates are rising. Conversely, sectors falling out of favor (like suburban office post-2020) see cap rate expansion regardless of the rate environment.

Cap Rate vs. Other Metrics

Metric	Formula	What It Tells You
Cap Rate	NOI / Property Value	Unlevered yield on total property value
DSCR	NOI / Annual Debt Service	Whether income covers loan payments
Cash-on-Cash	Pre-Tax Cash Flow / Equity Invested	Levered return on your actual cash in the deal
GRM	Property Price / Gross Annual Rent	Quick pricing multiple (ignores expenses)

Experienced brokers present all of these metrics when packaging a deal. Cap rate gives the headline number. DSCR tells the lender the deal works. Cash-on-cash tells the investor what they actually earn. Using them together builds a complete picture.

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Frequently Asked Questions

What is a good cap rate for commercial real estate?

Cap rates vary significantly by property type, location, and market conditions. Multifamily properties in major metros typically trade at 4%–5.5%, while retail and office properties in secondary markets may range from 6.5%–9%. A "good" cap rate depends on the investor's risk tolerance, the property's stability, and available financing terms. Lower cap rates generally indicate lower risk and higher property values.

How do you calculate cap rate?

Cap rate is calculated by dividing a property's Net Operating Income (NOI) by its current market value or purchase price, then expressing the result as a percentage. For example, a property with $100,000 in NOI and a $2,000,000 value has a cap rate of 5.0%.

What is the difference between cap rate and cash-on-cash return?

Cap rate measures the unlevered return on the total property value (NOI / Property Value). Cash-on-cash return measures the levered return on the equity invested (Annual Pre-Tax Cash Flow / Total Cash Invested). Cap rate ignores financing, while cash-on-cash return accounts for mortgage payments and the amount of equity in the deal.

Does a higher cap rate mean a better investment?

Not necessarily. A higher cap rate means a higher yield relative to purchase price, but it also typically signals higher risk. Properties with high cap rates may have unstable tenants, deferred maintenance, challenging locations, or other risk factors. Conversely, low cap rates often indicate stable, well-located properties with strong tenant profiles.

How do you estimate property value using cap rate?

Divide the property's Net Operating Income by the cap rate. For example, a property with $500,000 NOI at a 5.5% cap rate has an estimated value of approximately $9,090,909. This is the income approach to valuation, one of the three standard methods appraisers use for income-producing commercial properties.

Why do cap rates vary by property type?

Cap rates reflect the perceived risk of a property's income stream. Multifamily properties typically have the lowest cap rates because residential demand is stable. Industrial and self-storage properties trade at slightly higher rates. Office and retail properties generally have the highest cap rates due to longer lease-up periods, higher tenant improvement costs, and greater sensitivity to economic cycles.

This content is for informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Janover Pro is a technology platform that connects commercial mortgage brokers with lenders. Janover Pro is not a lender and does not make lending decisions. Loan terms, rates, eligibility, and availability are determined by individual lenders and are subject to change without notice. Consult qualified financial and legal professionals before making financing decisions.