Trusting the broker's cap rate. Broker proformas routinely understate vacancy and management cost, and project rent growth aggressively. Re-underwrite NOI yourself. Mixing cap-rate definitions. "Going-in cap" = year-1 NOI ÷ price. "Stabilised cap" = year-3-or-5 stabilised NOI ÷ all-in basis. "Exit cap" = projected sale-year NOI ÷ sale price. Confusing these is the most common cap-rate error. Comparing across markets. A 6% cap in New York is not the same risk-adjusted return as a 6% cap in a tertiary market. Compare within markets. Ignoring leverage. A 6% cap with 5% debt = positive leverage (cash-on-cash boosted). A 6% cap with 7% debt = negative leverage (cash-on-cash worse than unlevered). Watch the spread.

noi-calculator — produces the NOI input. gross-rent-multiplier — the cheap-and-cheerful cap-rate cousin. property-irr — extend cap rate into a full hold-period return. rent-vs-buy — landlord-side analysis (this tool) versus owner-occupier analysis.

Cap Rate Calculator

Calculate capitalization rate for a rental property. Enter NOI and property price — get cap rate %. Reverse-solve: enter NOI + target cap rate to derive the offer price. Browser-only.

Cap rate = NOI ÷ price (or value). It's a single-year, financing-free measure. Don't use it as the only yardstick for value-add deals where NOI changes year-over-year, or for development where there's no current NOI to capitalise.

Mode

Currency symbol

Net Operating Income (annual)

Property price / value

Cap rate (%)

Asset class (for benchmark)

Result

What is cap rate?

The capitalization rate is the ratio of a property's Net Operating Income to its market value (or purchase price), expressed as a percentage. It answers: "what unlevered yield does this property produce at current operations?" It's the most common cross-deal comparison metric in commercial-style real estate because it strips out individual financing, taxation, and depreciation choices that differ between buyers.

The formula

Cap rate = NOI ÷ Price (or current market value)
Max offer price = NOI ÷ Required cap rate

If a building produces $24,000 NOI and trades at a $400,000 price, the cap rate is 6%. If you require 7% to take the deal, the most you should pay is $24,000 ÷ 0.07 = $342,857.

Benchmarks (rough, 2026)

Asset class	Typical cap range
Multifamily — urban core (A)	4.0 – 5.5%
Multifamily — suburban (B)	5.5 – 7.0%
Multifamily — older / tertiary (C)	7.0 – 9.5%
Single-family rental	5.0 – 7.5%
Net-lease retail	5.5 – 7.5%
Office (post-2024 reset)	7.5 – 11.0%
Industrial / logistics	5.0 – 7.0%
Hotel	7.0 – 10.0%

These are rough ranges — actual market caps shift with the 10-year Treasury yield, lending availability, and local fundamentals. Verify against recent comparable sales (the cap rate the comp sold at, not asked-for cap), and against broker market reports for your specific city.

When cap rate is useful

Stabilised cash-flowing assets. Existing rental with multiple years of operating history and rents at market — exactly the case cap rate was designed for.
Comparing assets within the same class and market. Two similar buildings in the same submarket — if one trades at a 7% cap and the other at a 5% cap, the difference is signalling something (condition, tenant credit, location nuance).
Quick sanity check. A 12% cap on a Class A building in a tier-one city is implausible — either the NOI is overstated, the price is wrong, or there's a story (lease about to roll, tenant bankruptcy).

When cap rate misleads

Value-add deals. Buying a beat-up building to renovate and re-tenant: the current-year NOI doesn't reflect the stabilised future state. Going-in cap is low (or even negative) by design. Use stabilised cap (the projected post-stabilisation cap on the all-in basis) instead.
Development / ground-up. No NOI yet. Use yield-on-cost (projected stabilised NOI ÷ total development cost) instead, and compare to market cap rate. Yield-on-cost minus market cap = development spread, your reward for taking construction risk.
Short-term-rental or vacation properties. Volatile NOI year-to-year; cap rate based on a single year is fragile. Use trailing 3-year average NOI and apply a higher cap to compensate for volatility.
Leases about to expire. If the main tenant rolls in 6 months and rents have moved 30%, today's NOI is a bad input. Underwrite the post-roll NOI separately.
Below-market in-place rent. If contracted rent is below market because of long-term leases, current NOI understates earning power. Underwrite to market rent and adjust the cap.

Cap rate vs other yardsticks

Cap rate — unlevered, single-year, financing-free.
Cash-on-cash return — levered cash flow ÷ equity invested. Reflects your specific financing.
IRR — total return over the full hold period, including refinancing and exit. The most rigorous yardstick — see property-irr.
Yield-on-cost — for development / heavy value-add: projected NOI ÷ all-in cost basis.
Gross rent multiplier (GRM) — price ÷ annual gross rent (not NOI). Quick and dirty; see gross-rent-multiplier.

Common mistakes

Trusting the broker's cap rate. Broker proformas routinely understate vacancy and management cost, and project rent growth aggressively. Re-underwrite NOI yourself.
Mixing cap-rate definitions. "Going-in cap" = year-1 NOI ÷ price. "Stabilised cap" = year-3-or-5 stabilised NOI ÷ all-in basis. "Exit cap" = projected sale-year NOI ÷ sale price. Confusing these is the most common cap-rate error.
Comparing across markets. A 6% cap in New York is not the same risk-adjusted return as a 6% cap in a tertiary market. Compare within markets.
Ignoring leverage. A 6% cap with 5% debt = positive leverage (cash-on-cash boosted). A 6% cap with 7% debt = negative leverage (cash-on-cash worse than unlevered). Watch the spread.

Pairs with

noi-calculator — produces the NOI input.
gross-rent-multiplier — the cheap-and-cheerful cap-rate cousin.
property-irr — extend cap rate into a full hold-period return.
rent-vs-buy — landlord-side analysis (this tool) versus owner-occupier analysis.