Capitalization Rate (Cap Rate) Calculator
Calculate cap rates for commercial & residential property investments. Evaluate real estate yields globally.
What Is a Cap Rate in Real Estate?
The Capitalization Rate—or Cap Rate—is the most widely recognized industry metric for evaluating commercial and residential rental real estate investments. It measures the potential annual return an investment property generates relative to its current market value or purchase price, independent of leverage or mortgage financing, serving as a pure indicator of raw asset performance.
Who Relies on Cap Rate Analysis?
Commercial real estate investors, property valuation analysts, portfolio managers, and buyers comparing multiple deals across diverse regional markets use this cap rate tool as a standardized screening filter to identify highly profitable investments.
How to Calculate Property Cap Rate
1. Enter the property's annual Net Operating Income (NOI). 2. Input the purchase price or current market property value. 3. Click Calculate to immediately derive the Cap Rate percentage.
How to Interpret Your Cap Rate Percentage
A baseline cap rate ranging between 5% and 10% is typical for stable real estate markets. A higher cap rate implies stronger annual yields but accompanies a higher localized market risk profile. Conversely, compressed or lower cap rates reflect premier, low-risk properties positioned in high-demand metropolitan hubs.
Frequently Asked Questions
Q: What is a good Cap Rate for commercial property?
A: Generally, 5% to 8% is standard for stable residential/commercial assets. Lower cap rates (3-5%) represent low-risk primary markets; higher (8-12%) represent tertiary or higher-risk areas.
Q: Does Cap Rate include mortgage financing costs?
A: No. Cap Rate evaluates property performance as if purchased 100% in cash, enabling fair comparison regardless of differing loan structures.
Q: How do you calculate Net Operating Income (NOI)?
A: NOI = Gross Rental Income minus Operating Expenses (taxes, insurance, repairs, vacancy, management fees). Do not include debt service or depreciation.