Cap Rate Calculator
Evaluate property income, value, and pricing assumptions.
Property Assumptions
How to use this cap rate calculator
Find Cap Rate — Enter income, vacancy, expenses, and purchase price. The calculator estimates NOI and cap rate.
Estimate Value at Target Cap Rate — Enter income, vacancy, expenses, and your target cap rate. The calculator estimates value based on NOI.
Find Required NOI — Enter a price and target cap rate. The calculator estimates the NOI associated with that price at the selected cap rate.
Estimate Supported Purchase Price — Enter income, expenses, and a target cap rate. The calculator estimates the purchase price supported by those assumptions.
What is cap rate?
Cap rate is a quick way to compare a property's net operating income to its price or value. It is commonly used to compare how aggressively properties are priced relative to income.
Higher cap rates are often associated with higher income relative to price, but they may also reflect higher perceived risk, weaker location, older condition, or less predictable income. Lower cap rates may reflect stronger location, higher-quality tenancy, lower perceived risk, or stronger buyer demand.
Important note
Cap rate does not include loan payments, income taxes, appreciation, depreciation, or future rent growth. It is useful for screening and comparison, but it is not a complete property analysis.
What is Gross Rent Multiplier (GRM)?
Gross Rent Multiplier (GRM) compares property price to gross rental income before expenses.
Lower GRMs generally indicate more income relative to price, while higher GRMs may reflect stronger location, newer construction, lower perceived risk, or expectations of future rent growth.
Unlike cap rate, GRM does not account for operating expenses, vacancy, repairs, or management costs. Because of that, GRM is typically used as a quick screening metric rather than a complete analysis tool.
How NOI affects cap rate and value
Cap rate changes when NOI changes relative to the property price or value. If price stays the same and NOI increases, the cap rate generally increases. If value increases faster than NOI, the cap rate generally decreases.
Increasing rents, reducing vacancy, improving tenant quality, or adding additional income streams can have a meaningful impact because relatively small increases in NOI can create substantial changes in estimated property value.
At a 6% cap rate, every additional $1,000 of annual NOI supports approximately $16,667 in value. At an 8% cap rate, the same NOI increase supports approximately $12,500 in value.
Expense reductions can also affect NOI, but there are practical limits. Cutting too deeply into repairs, maintenance, management, or reserves can create operational problems later and may reduce the property's long-term performance.
Lower cap rates are sometimes associated with stronger locations, higher-quality tenancy, redevelopment potential, or expectations of future rent growth. If a property's pricing only works under highly optimistic assumptions, the actual risk may be higher than the initial cap rate suggests.
Understanding expense ratios
Expense ratios vary significantly by property type, age, lease structure, management intensity, and local market conditions.
Multifamily properties often operate with materially higher expense ratios because of turnover, maintenance, management, utilities, and operating complexity. Some multifamily properties may operate at expense ratios approaching 40%–50% or higher.
Industrial and warehouse properties — particularly those with long-term tenants and triple-net lease structures — may operate with much lower expense ratios, sometimes closer to 15%–25%.
Office and retail properties can vary widely depending on lease structure, tenant improvements, common area maintenance obligations, and occupancy levels.
Expense ratios that appear unusually low sometimes indicate deferred maintenance, missing reserves, underestimated expenses, or incomplete underwriting assumptions.
Why cap rate alone can be misleading
Cap rate alone does not determine whether a property is appropriately priced or financially attractive. Deferred maintenance, unstable tenants, future capital expenditures, weak lease structures, or declining market conditions can all create risks that cap rate alone does not capture.
Cap rate also does not account for financing. Two properties with the same cap rate can produce very different cash flow results depending on interest rates, loan structure, reserves, management strategy, and operating execution.
That is why cap rate is commonly used as an initial screening and comparison tool rather than a complete analysis.