Commercial Real Estate Analysis
Cap Rate Calculator
Estimate a property’s net operating income, capitalization rate, operating expense ratio, and indicated value at a target cap rate. Enter annual figures and adjust every income and operating-expense category to match the property.
Cap Rate Calculator
Build net operating income from detailed property income and operating expenses, then estimate capitalization rate and value at a target cap rate.
Disclaimer: This calculator provides an informational estimate only. Cap rate does not measure financing, taxes, appreciation, capital expenditures, lease rollover, environmental risk, or future market conditions.
Property performance estimate
Capitalization Rate Report
Primary assumptions
Calculation summary
Detailed income, expenses, or costs
Compare every amount with current source documents and confirm exclusions, allocations, and local requirements with qualified professionals.
This report is an informational estimate only and is not financial, tax, legal, lending, appraisal, or escrow advice.
How the Cap Rate Calculator Works
The calculator begins with annual potential income, subtracts vacancy and collection losses, and then subtracts recurring owner-paid operating expenses to estimate net operating income.
- Effective Gross Income: Scheduled rent and other recurring income less vacancy and collection loss.
- Net Operating Income: Effective gross income less recurring property operating expenses.
- Cap Rate: Net operating income divided by property value.
- Target value: Net operating income divided by the selected market cap rate.
Example Cap Rate Calculation
A property with $155,000 of scheduled rent and other income, 5% vacancy on rent, and $47,500 of operating expenses produces $100,000 of NOI. At a $1,500,000 value, the cap rate is approximately 6.67%. At a 6.50% target cap rate, the indicated value is approximately $1,538,462.
Income and Expense Treatment
Recurring property taxes, insurance, owner-paid utilities, repairs, management, janitorial service, landscaping, non-reimbursed common-area costs, payroll, professional fees, leasing expense, permits, and replacement reserves are commonly included in property-level operating expenses.
Mortgage principal and interest, depreciation, owner income taxes, acquisition costs, and major capital improvements are generally analyzed separately. Confirm unusual items with appropriate accounting, tax, lending, and valuation professionals.
Frequently Asked Questions
Does a higher cap rate always mean a better investment?
No. A higher cap rate can indicate higher current income relative to price, but it may also reflect greater property, tenant, location, lease, or market risk.
Should mortgage payments be included in NOI?
No. NOI is normally measured before financing so properties with different loan structures can be compared consistently.
Should replacement reserves be included?
Market practice varies. The calculator includes a separate reserve field so you can analyze the property both with and without an allowance for recurring replacements.
Where should the target cap rate come from?
Use recent comparable transactions and current market evidence for similar property type, location, quality, tenancy, and lease structure. A broker, appraiser, or other qualified professional can help interpret the evidence.
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Disclaimer: This calculator and related content provide an informal educational estimate only. They are not an appraisal, tax opinion, legal advice, investment recommendation, lending decision, or assurance of future performance. For general tax background, see IRS Publication 527.