Free Cap Rate Calculator

Determine the capitalization rate of an investment property by comparing net operating income to the current market value.

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Capitalization Rate

8.00%

Implied Value at 8% Cap$450,000
Implied Value at 6% Cap$600,000

Capitalization Rate vs Net Operating Income (NOI)

View formula & how it works →

Understanding the Capitalization Rate

The cap rate measures the expected rate of return on a real estate investment based on its income-producing potential.

Formula

Cap Rate = (Net Operating Income / Property Value) x 100

Interpreting Results

  • A higher cap rate suggests higher potential returns but also higher perceived risk
  • A lower cap rate indicates a more stable, lower-risk investment
  • Typical residential cap rates range from 4% to 10% depending on location and property class

    • Example Calculation

    A rental property generates $36,000 per year in net operating income and is valued at $450,000.

    1. 01Identify the NOI: $36,000 per year
    2. 02Identify the market value: $450,000
    3. 03Cap Rate = $36,000 / $450,000 = 0.08
    4. 04Cap Rate = 8.00%
    5. 05At an 8% cap rate, implied value = $36,000 / 0.08 = $450,000
    6. 06At a 6% cap rate, implied value = $36,000 / 0.06 = $600,000

    Frequently Asked Questions

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