Formula
Cap rate = Annual NOI ÷ Property value × 100. Implied value = Annual NOI ÷ (Target cap rate ÷ 100). Required annual NOI = Property value × (Target cap rate ÷ 100).
Investment tools
Cap Rate Calculator
Calculate a property's cap rate, implied value or required operating income. Start with known NOI or build it from rental income and expenses.
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How this calculator works
Cap Rate
Capitalization rate compares annual net operating income with a property's value or purchase price. It describes property operating performance before financing. Use consistent income, expense and replacement-reserve assumptions when comparing properties.
Simple example
A fictional property worth USD 500,000 with annual NOI of USD 30,000 has a 6% cap rate. At an assumed 6% cap rate, the same NOI implies USD 500,000 of value. The example uses no market rates or forecast appreciation.
FAQ
Frequently asked questions
What belongs in net operating income?+
Start with rental income after vacancy and collection losses, add other collected operating income, then subtract owner-paid property operating expenses. Examples include property taxes or local rates, insurance, maintenance, management, service fees and owner-paid utilities. Enter actual amounts rather than assumed local tax rates.
Should I subtract mortgage payments?+
No. Principal and interest are financing costs and are excluded from NOI here. Income taxes, depreciation, acquisition costs and actual capital improvements are also excluded. Use Property ROI to explore cash flow after financing and cash-on-cash return.
How are replacement reserves handled?+
NOI conventions differ. The detailed form shows NOI before and after the annual replacement reserve. Choose explicitly whether the reserve enters the capitalization calculation, and compare properties using the same convention.
Is a higher cap rate always better?+
No. Cap rate does not describe the property's complete risk, financing, future income changes, appreciation or total return. This tool does not recommend a target rate or rate a property as a good investment.
Does selecting a country convert my money?+
No. Country selection supplies currency choices from a bundled reference catalog. Changing currency preserves the numbers and shows a notice to check them. There are no exchange rates, automatic local taxes or country-specific financial recommendations.
Is the implied value an appraisal?+
No. It is the mathematical result of dividing your positive annual NOI by your assumed cap rate. Direct capitalization assumes stable operating income; it cannot assess a property's condition, market comparables or future sale price.
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