Calculate capitalization rate for investment properties. Compare NOI, property value, and expected returns.
| Property Type | Typical Cap Rate | Risk Level |
|---|---|---|
| Class A Multifamily (urban) | 4-5% | Low |
| Class B Multifamily | 5-7% | Moderate |
| Single Family Rental | 5-8% | Moderate |
| Commercial Office | 6-9% | Moderate-High |
| Retail Strip Mall | 7-10% | Higher |
Cap Rate = NOI / Property Value Γ 100
NOI = Gross Rental Income β Operating Expenses (taxes, insurance, maintenance, management, vacancy)
Higher cap rate = higher return but usually higher risk. A 10% cap rate property in a declining area may be riskier than a 5% cap rate in a prime location.
No. Cap rate is calculated before debt service. It measures the property return as if purchased all-cash. Use cash-on-cash return for leveraged analysis.
Enter the property value and net operating income (NOI), or enter any two of: property value, NOI, or cap rate. The calculator solves for the third.
Cap Rate = NOI / Property Value Γ 100%. NOI = Gross Income β Operating Expenses (excluding mortgage). Higher cap rate = higher return but often higher risk.
Property $250,000, gross rent $30,000/yr, expenses $8,000: NOI = $22,000. Cap Rate = $22,000 / $250,000 = 8.8%.
Good cap rates vary by market: 4-6% in prime urban areas, 7-10% in suburban, 10%+ in rural/risky areas. Cap rate ignores financing β use cash-on-cash return to evaluate leveraged deals.