Cap Rate Calculator
Calculate the capitalization rate for any commercial property. Cap Rate = NOI ÷ Property Value.
Annual net operating income
Typical Cap Rates by Property Type
What is Cap Rate?
The Capitalization Rate (Cap Rate) is one of the most important metrics in commercial real estate investing. It represents the ratio of a property's Net Operating Income (NOI) to its market value or purchase price.
How to Interpret Cap Rate:
- Higher Cap Rate (7%+): Generally indicates higher risk but potentially higher returns. Often found in secondary markets or with older properties.
- Lower Cap Rate (4-6%): Typically indicates lower risk and more stable properties. Common in prime locations or with credit tenants.
- Market Comparison: Cap rates help compare properties on an apples-to-apples basis regardless of size.
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Frequently Asked Questions
What is a "good" Cap Rate in 2026?
It depends on risk. Class A properties in hot markets might trade at 4-5%, while Class C value-add deals might be 6-8%+. A higher cap rate means higher return but usually higher risk.
Does Cap Rate include mortgage payments?
No. Cap Rate is an unlevered metric calculated using Net Operating Income (NOI), which is income before debt service. It measures the property's performance, not the financing.
Why is a lower Cap Rate sometimes better?
A lower cap rate usually indicates a higher quality asset, better location, or lower risk tenant profile. It implies the market is willing to pay a premium for that safety.
How does Cap Rate differ from Cash-on-Cash Return?
Cap Rate measures the property return as if bought all-cash. Cash-on-Cash measures the return on your specific equity investment after accounting for the loan.
Should I buy a property with a 4% Cap Rate?
Only if you expect significant appreciation or rent growth (NOI growth) in the future, or if you are parking capital for safety rather than cash flow.