Cap Rate Calculator

Calculate capitalization rate from NOI and property value. Compare to market averages by property type.

By Konstantin Iakovlev · Updated September 2026 · Source: CFPB — Owning a Home

Solve For
$
$

Cap Rate

8.00%

Property Value

$500,000.00

Annual NOI

$40,000.00

Cap Rate Analysis

Cap Rate8.00%
RatingExcellent
Monthly NOI$3,333.33
Typical Range: Residential4% - 8%
Typical Range: Commercial5% - 10%
Typical Range: Industrial6% - 10%

Use the Cap Rate Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

Capitalization rate is the shorthand investors use to size up an income-producing property and stack one opportunity against another. A clear read on cap rate supports sharper buy-and-sell decisions and shows how a deal measures up against the broader field.

To find the figure, divide Net Operating Income (NOI) by the property's current market value: Cap Rate = NOI / Property Value. NOI is the annual income left after operating expenses are subtracted, but before debt service and income taxes enter the picture. Because the formula strips out financing, it captures the unleveraged yield and makes comparisons across property types far more consistent.

Accuracy hinges on a clean NOI, so keep non-operating items such as mortgage payments and depreciation out of the figure. Treating gross income as NOI is a frequent error that inflates the result and distorts the comparison. A higher cap rate signals a larger potential return, yet it often reflects greater risk as well, which is why the number is best read against the typical range for that property type.

Example: Analyzing a Multifamily Property

  1. 1 Imagine you're evaluating a multifamily apartment building in a growing metropolitan area. The property has a projected annual Net Operating Income (NOI) of $150,000, based on current rental income and operating costs. The asking price for this property is $2,500,000.
  2. 2 Using the formula, Cap Rate = NOI / Property Value, we input these figures: Cap Rate = $150,000 / $2,500,000. Performing the division, we get 0.06.
  3. 3 The calculated capitalization rate for this multifamily property is 6.00%. This percentage represents the annual rate of return an investor can expect from the property's net income, assuming an all-cash purchase.
  4. 4 The calculator rates 6.00% as Good and lists 4%-8% as its typical range for residential property. Whether $2,500,000 is a fair price depends on the cap rates of recent sales of similar buildings nearby, so compare against those; a higher cap rate can mean a better return or more risk, and property condition and tenant quality decide which.

Source: CFPB — Owning a Home · Last updated: September 2026

Frequently Asked Questions

What is a good cap rate for rental property?
The calculator's reference range is 4%-8% for residential rental property, 5%-10% for commercial and 6%-10% for industrial. Newer buildings in prime locations tend to trade at the low end and older buildings in weaker areas at the high end. Higher cap rates mean higher risk and return potential.
How do I calculate cap rate?
Cap rate equals Net Operating Income (NOI) divided by the property purchase price or current market value. A property producing $24,000 NOI per year purchased for $300,000 has an 8% cap rate.
Why do cap rates vary by location?
Lower cap rates indicate higher demand and lower perceived risk, as in large metro areas where little new supply can be built. Higher cap rates indicate higher perceived risk or less demand, as in many rural areas. Cap rates also reflect local rent growth expectations.

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