Cap Rate Calculator

Analyze property returns by calculating capitalization rates. Compare property values, evaluate investments, and assess real estate performance metrics.

Property Value ($)

Annual Gross Income ($)

Annual Operating Expenses ($)

About Cap Rate Calculator

Understanding Cap Rate

The capitalization rate concept emerged in the early 20th century as real estate investment became more sophisticated. This metric revolutionized property valuation by providing a standardized way to compare different properties and assess their potential returns regardless of financing arrangements.

Mathematical Foundation

Cap Rate = (NOI / Property Value) × 100%
NOI = Gross Income - Operating Expenses
Property Value = NOI / Cap Rate

NOI = Net Operating Income
Operating Expenses exclude:
- Mortgage payments
- Depreciation
- Income taxes

Market Benchmarks

Prime Properties

Class A Office: 4-6%
Luxury Retail: 4-5%
High-end Multi-family: 3-5%
Prime Industrial: 5-7%

Secondary Markets

Class B Office: 6-8%
Strip Retail: 7-9%
Class B Apartments: 5-7%
Warehouse: 7-9%

Risk Assessment

Low Cap Rate (3-5%)

Lower risk profile
Prime locations
Strong tenant quality
Long-term leases

High Cap Rate (8%+)

Higher potential returns
Secondary locations
Value-add opportunities
Market volatility

Market Factors

Location Influence

Urban vs. suburban dynamics
Economic growth patterns
Population trends
Infrastructure development

Economic Indicators

Interest rates impact
Employment data
GDP growth factors
Market cycle position

Income Analysis

Revenue Components

Base rent collection
Additional rent income
Parking revenue streams
Ancillary income sources

Expense Categories

Property tax burden
Insurance costs
Utility expenses
Maintenance requirements

Investment Strategy

Core Investment

Low cap rate (4-6%)
Stable income flow
Prime locations
Low risk profile

Value-Add

Mid cap rate (6-8%)
Improvement potential
NOI growth opportunity
Moderate risk level

Opportunistic

High cap rate (8%+)
Significant upside
Major repositioning
High risk/reward

Due Diligence

Physical Analysis

Building inspection process
Environmental review steps
Systems assessment scope
Code compliance check

Financial Review

Rent roll analysis depth
Operating statements review
Tax assessment impact
Insurance claims history

Learn More

Capitalization Rate Wiki Real Estate Appraisal Real Estate Investment

Share This Calculator

Include calculator values in URL

Embed on Your Website

Add this calculator to your website