Cap rate calculator
A cap rate calculator divides a property's annual net operating income by its purchase price to produce the capitalization rate, the unlevered yield the property generates at that price.
After operating expenses, before debt service
For price per unit
- Net operating income
- $390,000
- Purchase price
- $6,000,000
- Cap rate
- 6.50%
- Price per unit
- $150,000
Formula
Cap Rate = Net Operating Income / Purchase PriceHow to read the result
The cap rate converts a price into a yield, which is what makes properties of different sizes and markets comparable. Because it ignores debt and capital expenditures, it prices the property rather than describing an investor's return.
A cap rate is only as honest as the net operating income behind it. Before trusting one, confirm the NOI includes a management fee at market and a replacement reserve, and that property taxes are stated at the reassessed value rather than the seller's basis. Those three omissions routinely inflate a quoted cap rate by 50 to 100 basis points.
Common questions
- What is a good cap rate for multifamily?
- There is no universally good cap rate, because the number reflects market pricing rather than deal quality. Cap rates vary with market, property vintage, and prevailing interest rates. What matters more is whether the net operating income behind the cap rate is underwritten honestly, and how the going-in rate compares to the exit rate you are assuming.
- Does the cap rate include the mortgage?
- No. Cap rate is calculated on net operating income, which is measured before debt service. Two buyers using different loans will compute the same cap rate on the same property at the same price. To measure a return that reflects financing, use cash-on-cash return or levered IRR instead.
- How do I calculate value from a cap rate?
- Rearrange the formula: value equals net operating income divided by the cap rate. A property producing $390,000 of NOI valued at a 6.5% cap rate is worth $6,000,000. This calculator solves in both directions.
Terms used here
- Capitalization Rate (Cap Rate)
A capitalization rate is a property's net operating income divided by its purchase price, expressed as a percentage, and it represents the unlevered annual yield the property produces at that price.
- Net Operating Income (NOI)
Net operating income is a property's effective gross income minus all operating expenses, excluding debt service, capital expenditures, depreciation, and income taxes.
- Exit Cap Rate
The exit cap rate is the capitalization rate assumed to apply when a property is sold at the end of the hold period, and it converts projected final-year net operating income into an assumed sale price.
- Price Per Unit
Price per unit is a property's total purchase price divided by its number of units, and it is the standard shorthand for comparing multifamily pricing across deals in a market.
Other calculators
- NOI calculator
An NOI calculator computes net operating income by subtracting vacancy, credit loss, and operating expenses from gross potential rent and adding other income, producing the figure that drives cap rate, DSCR, and property value.
- DSCR calculator
A DSCR calculator divides net operating income by annual debt service to produce the debt service coverage ratio, which measures how many times a property's income covers its loan payments.
- Cash-on-cash calculator
A cash-on-cash return calculator divides annual pre-tax cash flow after debt service by total equity invested, measuring the yearly cash yield an investor actually receives on the money they put in.
- Max loan calculator
A maximum loan calculator sizes the largest loan a property supports by testing loan-to-value, debt service coverage, and debt yield simultaneously, then returning the smallest of the three, which is how commercial lenders actually size debt.
This calculator is provided for informational purposes and is not investment, tax, or lending advice. Results depend entirely on the inputs you provide. Lenders re-underwrite net operating income on their own terms, so their figures will differ from these.