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Cap Rate (Capitalization Rate) Calculator

Calculate Net Operating Income (NOI) and property Capitalization Rate (Cap Rate) with commercial real estate risk benchmark evaluations.

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Calculation Formula

NOI = Gross Annual Income | Operating Expenses. Cap Rate = (NOI / Current Market Value) * 100. Cap Rate measures the unleveraged rate of return expected on a commercial or residential investment property.
Disclaimer: Estimates only for educational and planning purposes; not certified financial, tax, or legal advice. Please consult a qualified professional before executing financial commitments.

How to Use the Cap Rate (Capitalization Rate) Calculator

  1. 1 Enter Gross Annual Rental & Ancillary Income ($).
  2. 2 Input Total Annual Operating Expenses ($) (excluding mortgage debt).
  3. 3 Specify Current Property Market Value or Acquisition Price ($).
  4. 4 Review Net Operating Income (NOI) and the resulting Cap Rate percentage.

Methodology & Algorithmic Standards

NOI = Gross Annual Income | Operating Expenses. Cap Rate = (NOI / Current Market Value) * 100. Cap Rate measures the unleveraged rate of return expected on a commercial or residential investment property.

Frequently Asked Questions

Should mortgage payments be included in operating expenses for Cap Rate? ▼

No! Capitalization Rate measures property-level performance independent of how the buyer finances the asset. Debt service is excluded from NOI.

What does a high vs low Cap Rate indicate? ▼

A lower Cap Rate (4% to 5%) indicates lower perceived risk in prime urban markets. A higher Cap Rate (8% to 10%+) indicates higher income potential but greater vacancy or economic risk.

How do investors use Cap Rate to determine property value? ▼

By dividing expected NOI by the prevailing market Cap Rate: Property Value = NOI / Market Cap Rate.

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