Cap Rate Calculator for Real Estate
Use this cap rate calculator to estimate net operating income, capitalization rate, value at a target cap rate and the NOI required for a target return. It works with annual rental and commercial property assumptions in U.S. dollars.
Cap rate formula
How to calculate cap rate from NOI
Methodology version: August 9, 2026. Review the full methodology before relying on a result.
1. Estimate potential gross income
Add annual scheduled rent and recurring property income such as parking, laundry or storage. Use a stabilized twelve-month period. One-time reimbursements or sale proceeds do not belong in potential gross income.
2. Calculate effective gross income and NOI
Subtract vacancy and collection loss from potential gross income. Then subtract recurring operating expenses. Property taxes, insurance, management, routine maintenance, owner-paid utilities and a consistently modeled replacement reserve can be operating expenses. Mortgage payments and investor income taxes are not.
3. Divide NOI by property value
Use purchase price for a going-in acquisition metric or current market value for a current cap rate. Keep that choice consistent when comparing properties.
Editable example
A cap rate calculation step by step
The starting values demonstrate the interface; they are not market averages or an investment forecast.
A property valued at $500,000 has $60,000 in annual scheduled rent. After a 5.0% vacancy and collection allowance and $20,000 of annual operating expenses, estimated NOI is $37,000.
- Cap rate
- 7.4%
- Value at 7%
- $528,571
- NOI required at 7%
- $35,000
EstateCalc does not round the intermediate income, loss or expense values. Currency and percentage rounding is applied only when the result is displayed.
Direct capitalization
Estimate property value from NOI and a target cap rate
A cap rate valuation calculator reverses the formula. Divide positive, stabilized NOI by a target capitalization rate expressed as a decimal. The calculator also shows the annual NOI needed for the current property value to match that target rate.
The target rate is an assumption, not a rate supplied by EstateCalc. It can vary by market, property type, lease duration, tenant credit, condition, income growth expectations and the date of analysis. Direct capitalization is most informative when one representative year of income is reasonably stable. A multi-year discounted cash flow model is more suitable when income or capital spending changes materially over time.
Property type
Rental and commercial real estate cap rates
The cap rate formula is identical for a house, apartment building, office, retail property or other income-producing real estate. The underwriting inputs are not identical. A residential rental may rely on monthly leases and owner-paid utilities, while a commercial property may have base rent, reimbursements, percentage rent, tenant improvements and lease rollover risk.
Enter income and expenses on the same annual basis and document whether recoveries are included. Compare cap rates only after making the NOI definitions consistent.
Metric choice
Cap rate vs. ROI, cash-on-cash return and GRM
Cap rate is an unlevered snapshot based on NOI. Cash-on-cash return includes mortgage debt service and divides pre-tax cash flow by the cash invested. A broader ROI model can add principal paydown, appreciation and net sale proceeds. Gross rent multiplier divides property value by scheduled rent before vacancy or expenses.
These metrics answer different questions. Use the rental property calculator when you need financing, cash flow and a holding-period scenario instead of a focused capitalization-rate calculation.
What this cap rate result excludes
Results exclude mortgage principal and interest, lender fees, investor income taxes, depreciation, appreciation, sale proceeds, selling costs, acquisition costs, capital improvements and the time value of money. Include recurring property tax and ordinary operating costs inside the operating-expense input. Treat replacement reserves consistently with the NOI definition used for comparable properties. This educational estimate is not an appraisal, tax opinion or investment recommendation.
Questions
Cap rate calculator FAQ
What is cap rate in real estate?
Capitalization rate, or cap rate, is annual net operating income divided by the property’s price or current value. It is an unlevered, one-year measure: financing, appreciation and sale proceeds are outside the calculation.
How do you calculate cap rate?
Estimate potential property income, subtract vacancy and collection loss, then subtract recurring operating expenses to find NOI. Divide annual NOI by the property value and multiply by 100. EstateCalc keeps intermediate values unrounded.
What is included in NOI?
NOI includes recurring property income after vacancy and recurring operating costs such as property taxes, insurance, management, maintenance and owner-paid utilities. It excludes debt service, income taxes, depreciation, capital improvements and transaction costs.
Does cap rate include mortgage payments?
No. Mortgage principal, interest and other debt service are excluded from NOI and cap rate. Use cash flow or cash-on-cash return to analyze the effect of financing.
Can I estimate property value from NOI and cap rate?
Yes, as a direct-capitalization scenario: divide a positive, stabilized annual NOI by the target cap rate expressed as a decimal. The result depends entirely on the NOI and target rate assumptions and is not an appraisal.
Should I use purchase price or current market value?
Use acquisition price to calculate a going-in cap rate for a proposed purchase. Use current market value to describe the property’s current cap rate. Label the basis consistently when comparing properties.
How is cap rate different from cash-on-cash return, ROI, rental yield and GRM?
Cap rate uses NOI and ignores financing. Cash-on-cash return uses cash flow after debt service and actual cash invested. ROI can include appreciation and sale proceeds. Gross rental yield and GRM use gross rent before operating expenses.
Is the formula different for rental and commercial properties?
The formula is the same, but the income, lease structure, reimbursements, vacancy assumptions and operating expenses can differ materially. Build NOI from property-specific leases and costs before comparing the result.
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