Cap Rate Calculator, Cap Rate From NOI, or Price From Target Cap Rate

A capitalisation rate is a property's annual net operating income divided by its value, expressed as a percentage. It is the income return the asset throws off at today's price, before financing, which is why it is the standard shorthand for comparing income-producing properties.

NOI is effective gross income, potential rent less vacancy and credit loss, minus operating expenses such as management, maintenance, insurance and property taxes. It deliberately excludes mortgage principal and interest, depreciation, income tax and capital expenditure. That exclusion is part of the definition, not an omission: once debt service goes in, the result is cash flow, not NOI, and the rate you compute is no longer a cap rate.

There is no universal number. Cap rates move with asset class, city, tenant quality, lease length and, above all, the interest-rate environment, so any single 'good' range printed here would be misleading within a year. The way to use the figure is comparative: work out the cap rate for several comparable properties in the same market and compare like with like.

Divide the net operating income by the cap rate you require, expressed as a decimal. If a property generates $45,000 of NOI and you need a 7.5% return before financing, the ceiling is $45,000 ÷ 0.075 = $600,000. The target cap rate field does this calculation for you.

No, and that is the point. Cap rate describes the asset in isolation from how it is financed, so two buyers with very different loans can compare the same property. Your actual return after debt is a separate calculation that depends on your terms.

Cap rate compares NOI to the property's whole value; cash-on-cash compares annual pre-tax cash flow to the cash you actually invested. Once you introduce a mortgage, the two diverge, a property can have a healthy cap rate but a poor cash-on-cash return if the debt is expensive.