Real Estate Investment

Cap Rate Calculator

Calculate capitalization rate from annual net operating income and property value for real estate investment and underwriting analysis.

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Cap Rate Analysis
Measure annual NOI as a percentage of property value
Enter the property value or acquisition basis used for this analysis.
Annual income after operating expenses and before debt service, income taxes, depreciation, and amortization.
Real Estate Guide

Understanding Capitalization Rate

Calculixy Editorial Team Real estate investment and underwriting reference Updated: September 2026

Capitalization rate, usually called cap rate, measures a property's annual net operating income relative to its value. It is one of the most widely used first-pass metrics in commercial real estate because it provides a financing-independent way to compare income production with the amount invested in or attributed to the property.

Cap rate formula

Cap Rate = Annual NOI ÷ Property Value × 100

If a property produces $40,000 of annual NOI and is valued at $500,000, the cap rate is 8.00%. The calculator uses the numbers you provide directly and does not infer rent, vacancy, expenses, financing terms, or market value.

What counts as NOI?

Net operating income is generally property income remaining after ordinary operating expenses and before debt service, income taxes, depreciation, and amortization. Because cap rate depends directly on NOI, the quality of the result depends on using an NOI figure that is consistent with the property and period being analyzed.

What cap rate does and does not tell you

Cap rate is an income-to-value ratio, not a complete investment return. It does not account for financing structure, mortgage payments, investor taxes, future appreciation, disposition proceeds, or the timing of cash flows. For those questions, metrics such as DSCR, debt yield, cash-on-cash return, and IRR may be more appropriate companions.

Interpreting a cap rate

A higher or lower cap rate is not automatically better. Differences may reflect property type, location, lease quality, condition, growth expectations, market liquidity, and perceived risk. Compare cap rates within an appropriate market and property context rather than treating one percentage as universally desirable.

Example

Suppose an income-producing property is valued at $1,250,000 and generates $87,500 of annual NOI. Dividing $87,500 by $1,250,000 gives 0.07, or a 7.00% cap rate.

Common Questions
Does cap rate include mortgage payments?

No. Cap rate is calculated from NOI and property value, so financing terms and debt service are excluded. That allows the property-level income yield to be considered independently from how an individual investor finances the asset.

Can a cap rate be negative?

Yes. If annual NOI is negative while property value remains positive, the mathematical cap rate is negative. That result indicates the property is operating at a loss on the NOI basis supplied.

Should I use purchase price or current market value?

Use the value that matches the question you are analyzing. Purchase price is useful for acquisition underwriting, while a current market value may be more appropriate for evaluating an existing holding. Keep the basis consistent when comparing properties.

Is a higher cap rate always better?

No. A higher cap rate may reflect stronger income relative to price, but it may also reflect higher perceived risk, weaker growth expectations, property condition, or a less liquid market. Cap rates should be interpreted in context.

How is cap rate different from debt yield?

Cap rate divides NOI by property value. Debt yield divides NOI by loan amount. Cap rate is an asset valuation and income metric, while debt yield is primarily a lender leverage and downside-risk metric.

Published: September 2026 · Results depend on user-provided NOI and property value and should be interpreted in market context.

For informational and educational purposes only. Results are estimates based on user-provided inputs and are not investment, lending, appraisal, tax, accounting, or legal advice.