Cap Rate Calculator
A property with $120,000 in annual net operating income and a $1,750,000 value has a 6.86% cap rate. This cap rate calculator divides annual NOI by property value, or reverses the equation to estimate an indicated value from NOI and a target cap rate. It can help compare income-property scenarios on an unfinanced basis. The answer is a screening metric, not an appraisal, offer recommendation, or forecast. Results depend heavily on how NOI is calculated and which market cap rate is selected. Review leases, vacancy, operating expenses, reserves, property condition, local sales, financing, taxes, and legal documents before making a real-estate decision.
Quick answer
Cap rate equals annual net operating income divided by property value, multiplied by 100.
What this tells you
- •Cap rate equals annual net operating income divided by property value, multiplied by 100.
- •NOI should reflect property revenue less vacancy and ordinary operating expenses on an annual basis.
- •Debt service, income taxes, depreciation, and owner-specific financing normally sit outside NOI for this ratio.
- •Reverse mode divides annual NOI by a target cap rate written as a decimal.
- •For the same NOI, a lower target cap rate produces a higher indicated value.
- •Cap rate does not measure cash-on-cash return because it ignores down payment and loan terms.
- •A trailing NOI, current NOI, broker pro forma, and stabilized NOI can produce different cap rates for the same property.
- •The result rounds cap rate to two decimals and property value to cents.
How to Use
- 1Choose cap rate mode when you know annual NOI and property value, or property value mode when you know NOI and want to test a target cap rate.
- 2Enter annual NOI, not monthly cash flow, gross rent, or income before operating expenses.
- 3In cap rate mode, enter the valuation basis you intend to analyze, such as asking price, purchase price, or an appraised value.
- 4In property value mode, enter a positive target cap rate as a percent. Type 6 for 6%, not 0.06.
- 5Calculate and confirm that the displayed mode, NOI, value, and rate match the scenario you intended.
- 6Repeat the calculation with alternative NOI and cap-rate assumptions to see how vacancy, expenses, and market pricing affect the answer.
- 7Use property records, leases, operating statements, inspection findings, and qualified advice before relying on the result in a transaction.
How It Works
Formula
Cap Rate = (Annual NOI / Property Value) x 100
Property Value = Annual NOI / (Target Cap Rate / 100)In cap rate mode, divide annual NOI by property value and multiply by 100. With $120,000 of NOI and a $1,750,000 value, $120,000 / $1,750,000 x 100 equals 6.857142857%, rounded to 6.86%. In value mode, divide the target percentage by 100, then divide NOI by that decimal rate. With $95,000 of NOI and a 5.5% target, $95,000 / 0.055 equals $1,727,272.73. Both equations assume the NOI and valuation refer to a comparable annual operating period and that NOI already reflects the operating expenses included in the analyst's definition.
Calculation note: values are processed in the order shown above, using the current input units.
Worked Examples
$120,000 NOI on a $1,750,000 property
$120,000 / $1,750,000 x 100 equals 6.857142857%, displayed as 6.86%. The ratio describes unfinanced income relative to the entered value. It does not show loan payments, future rent growth, capital work, or sale proceeds.
$95,000 NOI at a 5.50% target cap rate
Convert 5.50% to 0.055, then divide $95,000 by 0.055. That gives an estimated property value of $1,727,272.73 at the chosen cap rate.
$75,000 NOI on a $900,000 property
$75,000 / $900,000 x 100 equals 8.333333%, rounded to 8.33%. A higher ratio is not automatically a better acquisition because property risk, condition, tenant quality, location, and capital needs can differ.
$84,000 NOI at a 7% target
Convert 7% to 0.07 and divide $84,000 by 0.07. The indicated value is exactly $1,200,000 under the direct-cap assumption. A different stabilized NOI or market rate would change this output.
$180,000 NOI on a $2,400,000 property
$180,000 / $2,400,000 x 100 equals 7.5%. Before comparing it with another building, make sure both NOI figures use consistent treatment for vacancy, management, repairs, utilities, and reserves.
$60,000 NOI at a 4.5% target
$60,000 / 0.045 equals $1,333,333.33 after rounding. The low target rate raises indicated value for the same NOI, which shows why the selected market rate deserves careful support.
Estimated Property Value on $100,000 Annual NOI
A quick lookup that shows how the same NOI supports a different value as the market cap rate changes.
| Cap Rate | Estimated Property Value |
|---|---|
| 4.00% | $2,500,000 |
| 5.00% | $2,000,000 |
| 6.00% | $1,666,667 |
| 7.00% | $1,428,571 |
| 8.00% | $1,250,000 |
Lower cap rates imply higher values for the same NOI. Local risk, growth expectations, lease terms, and property condition still matter.
What belongs in NOI
NOI generally starts with property revenue, adjusts for vacancy and collection loss, adds applicable other property income, and subtracts ordinary operating expenses. Common expense categories include property management, repairs, insurance, utilities paid by the owner, property taxes, landscaping, and routine services.
Mortgage principal and interest are normally excluded because cap rate compares property operations before owner-specific financing. Income taxes and accounting depreciation are also outside the basic ratio. Treatment of replacement reserves and unusual expenses can vary, so document the convention used.
A pro forma NOI may assume future rent, occupancy, or expense performance that has not occurred. A trailing NOI reflects a historical period that may include temporary conditions. Comparing properties requires consistent periods and definitions rather than accepting every stated NOI at face value.
Common mistakes
- Using gross scheduled rent instead of NOI after vacancy and operating expenses
- Entering one month of NOI against a full property value instead of annualizing the income
- Comparing cap rates across very different markets, lease structures, or property classes as if they mean the same risk
- Treating cap rate as the full investor return even though debt, taxes, capital expenditures, and appreciation sit outside this simple ratio
- Using a broker's projected NOI without checking its rent, vacancy, expense, and stabilization assumptions
- Leaving out management or recurring maintenance because the current owner performs the work personally
- Comparing a purchase-price cap rate with an appraised-value cap rate without labeling the valuation basis
- Entering 0.06 for 6%, which the percentage field interprets as 0.06% and produces a very different value
Limitations
This calculator uses a simple direct-cap method with positive annual NOI and a positive value or target rate. It assumes the NOI and valuation basis are compatible and does not verify revenue, vacancy, expense, lease, or market data. It does not model financing, cash flow timing, rent growth, changing occupancy, concessions, replacement reserves, capital expenditures, tenant improvements, leasing commissions, environmental issues, deferred maintenance, insurance changes, tax reassessment, sale costs, or appreciation. Direct capitalization may be unsuitable for unstable income, development projects, owner-occupied property, short-term operations, or assets requiring a multi-year discounted cash-flow analysis.
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