Cap Rate Calculator
Calculate capitalization rate (NOI ÷ property value), find implied property value from a target cap rate, or determine required NOI. Free cap rate tool.
Reviewed for accuracy by Marcus Webb and the Blueprint Dynamics editorial team (last updated July 2026). Our calculators use primary-source formulas and are cross-checked against IRS publications, Fannie Mae guidelines, and Federal Reserve data. Learn more about our methodology.
Cap Rate = Net Operating Income ÷ Property Value
Cap Rate
5.93%
Net Operating Income
$17,800/yr
What cap rate measures — and what it doesn't
Capitalization rate (cap rate) is the ratio of a property's net operating income (NOI) to its market value: Cap Rate = NOI / Property Value. It represents the unleveraged return on a real estate investment — the return you'd earn if you bought the property with all cash and no mortgage. A $500,000 property generating $35,000 in annual NOI has a 7% cap rate. Cap rate is used to value commercial and multifamily properties, compare returns across different assets, and assess risk relative to return. It does not include the effect of mortgage financing (which can lever returns up or down).
How to calculate NOI correctly
NOI = gross rental income − vacancy allowance − all operating expenses. Operating expenses include: property management, property taxes, insurance, maintenance and repairs, capital expenditure reserves, utilities paid by landlord, and any other operating costs. NOI does NOT include mortgage principal or interest payments, depreciation, or income taxes — these are below-the-line items. Common NOI mistake: including capital expenditures (roof replacement, HVAC, etc.) in full in the year they occur rather than as a regular annual reserve. Proper NOI modeling uses an annual CapEx reserve of 5–10% of gross rents to smooth the actual lumpy cost of large capital repairs.
Cap rate benchmarks by property type and market
Cap rates vary by market, property type, and risk. Single-family rentals in primary markets (major metros): 3–5%. Multifamily (5+ units) in primary markets: 4–6%. Multifamily in secondary/tertiary markets: 5–8%. Commercial retail: 5–8%. Industrial/warehouse: 4–6% (compressed in recent years due to e-commerce demand). Office: 6–9%+ (currently under pressure due to remote work trends). Strip malls: 6–9%. Hotels: 7–11%. A higher cap rate implies higher risk, lower demand for that asset class, or lower appreciation expectations. Lower cap rates in primary markets reflect investor confidence in rent growth and asset appreciation — investors accept lower current income for anticipated future gains.
Cap rate vs. cash-on-cash return
Cap rate is an unlevered metric — it ignores financing. Cash-on-cash return measures the actual cash income on the actual cash invested after debt service, making it the more relevant metric for a leveraged investor. A property with a 6% cap rate financed with a mortgage at 7% interest rate is said to have "negative leverage" — the cost of debt exceeds the unlevered return, meaning borrowing reduces your cash-on-cash return. Positive leverage occurs when the cap rate exceeds the mortgage rate: a 7% cap rate property financed at 5% benefits from leverage, increasing the cash-on-cash return above the cap rate. In a rising rate environment, this relationship between cap rates and mortgage rates is the key driver of real estate investment returns.