Cap rate calculator for commercial real estate.
Enter the net operating income and the purchase price. The cap rate appears as you type, with what it becomes if the price moves.
Your property
Your result
Cap rate
8.00%
The yearly income of the property as a share of its price.
Price for your target rate
If the price moves
| 10% lower | $5,400,000 | 8.89% |
|---|---|---|
| 5% lower | $5,700,000 | 8.42% |
| Your price | $6,000,000 | 8.00% |
| 5% higher | $6,300,000 | 7.62% |
| 10% higher | $6,600,000 | 7.27% |
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One page: your inputs, the cap rate, the price table, the value at your target and the formula.
How it is computed
The yearly income of the property as a share of its price.
The price at which the same income gives the rate you want.
Direct capitalization, as defined in the Appraisal Institute text The Appraisal of Real Estate: the value of an income property is its income divided by a rate.
What counts as net operating income.
Net operating income is rental income and other income, minus the costs of running the property. Property taxes, insurance, maintenance, management and utilities are in. Mortgage payments, income taxes, depreciation and capital improvements are out.
What the cap rate leaves out.
It uses one year of income and ignores financing, taxes and capital spending. It does not describe the lease, the tenant or the condition of the building, so read it next to those.
Questions.
What is a good cap rate?
Should mortgage payments be in net operating income?
Which price should I use?
Next in the sequence
- Net operating income calculator
Work out the yearly income before you test a price.
- Cash on cash return calculator
See the return on the cash you put in.
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Share your numbers and we’ll tell you honestly whether AI moves the needle for your team.
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