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Cap Rate Calculator — Instant Results

Calculate capitalization rate, property value, or NOI for any commercial property. Three modes, zero signup. Used by thousands of CRE professionals.

$

Annual net operating income (revenue minus operating expenses)

$

Current market value or asking price

Typical Cap Rate Ranges (2024–2026)

Class A Office: 5–7%
Class B Office: 7–9%
Retail: 6–8%
Industrial: 5–7%
Multifamily: 4–6%
NNN Lease: 5–7%

Understanding Cap Rates in Commercial Real Estate

📐 The Formula

Cap Rate = NOI ÷ Property Value × 100

The capitalization rate expresses the ratio between a property's annual net operating income and its market value. It answers: "What percentage return does this property generate on its total value, ignoring financing?"

🔄 Three Ways to Use It

  • Find Cap Rate: Know the NOI and price? Calculate the yield to compare against market benchmarks.
  • Find Value: Know the NOI and target cap rate? Back into what the property should be worth.
  • Find NOI: Know the price and cap rate? Calculate the income the property must generate.

⚠️ Common Mistakes

  • Including debt service in NOI — Mortgage payments are NOT operating expenses
  • Using gross income instead of NOI — Must subtract operating expenses first
  • Comparing across property types — A 6% retail cap ≠ 6% industrial cap
  • Ignoring market context — Cap rates shift with interest rates and demand

📊 Cap Rate vs. Other Metrics

  • Cap Rate: Unlevered return (ignores financing). Compares properties.
  • Cash-on-Cash: Leveraged return on equity invested. Compares deals.
  • IRR: Time-weighted return over hold period. Compares strategies.
  • DSCR: Income vs. debt payments. Measures debt safety.

Worked Example

Office Building — 25,000 SF

Gross Rental Income $375,000
– Vacancy Loss (5%) ($18,750)
Effective Gross Income $356,250
– Operating Expenses ($142,500)
Net Operating Income (NOI) $213,750
Purchase Price $2,850,000
Cap Rate 7.50%

$213,750 ÷ $2,850,000 = 0.075 = 7.50%

Go Beyond Cap Rate

Cap rate is just the starting point. Solsten builds a full proforma with NOI projections, rent roll modeling, DSCR analysis, IRR/NPV calculations, and 15-factor risk scoring — all from the data you enter.

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Cap Rate FAQ

What is a cap rate in commercial real estate?

A capitalization rate (cap rate) is a percentage that expresses the relationship between a property's net operating income (NOI) and its current market value. It is one of the most widely used metrics for evaluating and comparing commercial real estate investments. A 7% cap rate means the property generates 7 cents of NOI for every dollar of value.

What is a good cap rate for commercial real estate?

Cap rates vary widely by property type, location, and market conditions. In 2024–2026, typical ranges are: Class A office 5–7%, Class B office 7–9%, retail 6–8%, industrial/warehouse 5–7%, multifamily 4–6%, NNN single-tenant 5–7%. Lower cap rates usually indicate lower risk and higher-quality assets. There is no universal "good" cap rate — it depends on your return requirements and risk tolerance.

How do I calculate cap rate?

Cap Rate = Net Operating Income (NOI) ÷ Property Value × 100. For example, if a property generates $150,000 in annual NOI and is valued at $2,000,000, the cap rate is $150,000 ÷ $2,000,000 = 7.5%. You can also rearrange the formula to solve for property value (NOI ÷ Cap Rate) or NOI (Property Value × Cap Rate).

What is the difference between cap rate and ROI?

Cap rate measures unlevered return — it ignores financing. ROI (Return on Investment) or cash-on-cash return accounts for how the purchase is financed (mortgage payments, down payment). Two investors buying the same property at the same cap rate will have different ROIs if they use different loan structures. Cap rate tells you about the property; ROI tells you about the deal.

Does a higher cap rate mean a better investment?

Not necessarily. Higher cap rates usually indicate higher perceived risk — the market demands a higher return to compensate. A 10% cap rate property in a declining market may be riskier than a 5% cap rate property in a prime location. Think of cap rate as risk-adjusted pricing, not a return metric. Always analyze the underlying NOI stability, tenant quality, lease terms, and market trends.

What is NOI for cap rate calculations?

NOI (Net Operating Income) is gross rental income minus operating expenses (property taxes, insurance, maintenance, management fees, utilities). It does NOT include mortgage payments, capital expenditures, depreciation, or income taxes. Using the wrong NOI is the most common cap rate calculation mistake.

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