Cap Rate Calculator
Calculate capitalisation rate and implied property value from net operating income.
Please note: Estimates only, not investment or legal advice. Property markets, taxes, fees and lending rules vary by location and change over time. Verify figures with a qualified professional before committing.
What the Cap Rate Calculator does
Capitalisation rate is net operating income divided by property value — the unlevered return the asset produces. Because it excludes mortgage financing entirely, it is the standard way to compare commercial properties regardless of how each is funded.
Formula
Effective gross income = Gross income × (1 − Vacancy rate)NOI = Effective gross income − Operating expensesCap rate = NOI ÷ Property value × 100Implied value = NOI ÷ Cap rate
Inputs explained
| Input | Unit | Required | Notes |
|---|---|---|---|
| What do you want to find? | one of 2 options | Yes | — |
| Property value | selected currency | In some modes | Accepts more than 0. Shown What do you want to find? is Cap rate from value and income. |
| Target cap rate | % | In some modes | Shown What do you want to find? is Property value from cap rate. |
| Gross annual rental income | selected currency | Yes | Accepts more than 0. |
| Annual operating expenses | selected currency | Yes | Excluding mortgage payments. Accepts 0 or more. |
| Vacancy allowance | % | Optional | — |
| Currency | one of 10 options | Optional | — |
How to use it
- Choose What do you want to find? and Currency.
- Enter Gross annual rental income and Annual operating expenses.
- Fill in the remaining inputs the form shows for your choice.
- Optionally add Vacancy allowance.
- Select Calculate.
Worked example
A property valued at $850,000 with $78,000 gross income, $24,000 expenses and 5% vacancy.
- Value
- 850000
- Gross
- 78000
- Expenses
- 24000
- Vacancy
- 5
Effective income $74,100, NOI $50,100 — a cap rate of 5.89%.
Reading the result
- "Years to recover the price from NOI" is a simple payback figure, not a discounted return — read it as a rough sense of scale, not as comparable to an IRR or annualised return.
- Gross rent multiplier ignores expenses entirely while cap rate nets them out, so two properties with the same multiplier can have materially different cap rates if their expense ratios differ.
Assumptions and limitations
- NOI here is a single-year figure. It does not itself include reserves for future capital expenditure (roof, HVAC) unless those are folded into "operating expenses" — leaving them out inflates NOI and the resulting cap rate.
- In value mode, the implied value assumes the target cap rate is an appropriate benchmark for this specific property — it does not verify that.
Common mistakes
- Applying a target cap rate pulled from a different asset class or market when solving for value — the implied value is only as sound as how comparable that benchmark rate actually is.
- Switching between the two modes without noticing they still use the same operating expenses and vacancy inputs — changing only the target rate while those stay stale can produce a misleading implied value.
Frequently asked questions
What is a good cap rate?
It varies by market and asset class. Prime locations trade at 3–5% because buyers expect growth; secondary markets and riskier assets need 7–10% to attract capital.
Why exclude mortgage payments from NOI?
Because financing is a choice about the buyer, not a property of the asset. Excluding it lets two buyers with different funding compare the same building on equal terms.