Cap Rate Calculator

Cap rate = NOI ÷ value × 100. Inverted, value = NOI ÷ cap rate — how income property is priced. NOI = gross operating income − operating expenses, and crucially excludes mortgage payments, capital expenditure and depreciation.

NOI ÷ value — and what NOI leaves out

The capitalisation rate is the simplest important number in commercial and rental real estate: the net operating income divided by the property’s value. A 6% cap rate means the property earns 6% of its price each year, before any financing. Because it strips out the mortgage, the cap rate measures the property itself rather than the buyer’s financing — which is exactly why investors use it to compare deals on a common footing. The whole calculation rests on getting NOI right, and that is where people slip: NOI is income after operating expenses, but it specifically excludes the mortgage payment, capital expenditure, and depreciation. Include the mortgage and you are no longer computing a cap rate.

This calculator lets you enter NOI directly or build it up from gross rent, vacancy, other income and the operating expenses — and it shows the derivation line by line so the exclusions are explicit. Net operating income, then divided by value, gives the cap rate.

Worked example — a property earning $65,000 of NOI, valued at $1,000,000: Cap rate = $65,000 ÷ $1,000,000 = 6.5%. If your target cap rate is 6%, the property is worth $65,000 ÷ 6% = $1,083,000 to you — so at $1,000,000 it beats your target.

The valuation inversion

Read the formula backwards and it becomes a pricing tool: value = NOI ÷ cap rate. This is how income property is actually valued. If comparable buildings in the area trade at a 6% cap rate and yours produces \$65,000 of NOI, it is worth roughly \$1.08 million — regardless of what it cost. Raise the NOI (higher rents, lower expenses) or find a market with lower cap rates, and the value rises. It is why operators obsess over NOI: every extra dollar of it is worth many dollars of value at a low cap rate.

Switch the solve mode to “Value” to price a property from its NOI and a target cap rate, or to “NOI” to find the income a property must produce to justify a price at a given cap rate. The same three numbers — cap rate, NOI and value — rearranged for whichever you need.

Cap rate vs cash-on-cash — the key distinction

The cap rate is unleveraged: it deliberately ignores the mortgage. The cash-on-cash return is leveraged: it is the cash flow after the mortgage, divided by the cash you actually invested. The two answer different questions, and confusing them is the most common mistake new investors make. Add a down payment, loan rate and term and the calculator shows both side by side. When the cap rate is above the loan rate, leverage works in your favour and cash-on-cash exceeds the cap rate — positive leverage. When the loan rate is higher than the cap rate, leverage drags the return below it — negative leverage, where borrowing actually hurts.

A companion metric, the gross rent multiplier (price ÷ annual gross rent), appears when you derive NOI — a rougher screen that ignores expenses entirely. Use the cap rate to value and compare properties, cash-on-cash to judge your specific financed return, and GRM only as a quick first pass.