Cap rate calculator
NOI divided by price. The division is the easy part, so this page also does the parts people get wrong: it solves the identity in any direction, shows what the same NOI is worth at nearby cap rates, and says plainly which conventions the number depends on.
The same NOI at nearby cap rates
Value is NOI divided by a small number, so the same move is worth more downward than upward. This is why arguing 25 basis points on a low-cap deal is a real negotiation and not a rounding conversation.
| Cap rate | Implied value | Difference |
|---|---|---|
| 5.00% | $12,000,000 | +$2,000,000 |
| 5.50% | $10,909,091 | +$909,091 |
| 5.75% | $10,434,783 | +$434,783 |
| 6.00%This scenario | $10,000,000 | |
| 6.25% | $9,600,000 | -$400,000 |
| 6.50% | $9,230,769 | -$769,231 |
| 7.00% | $8,571,429 | -$1,428,571 |
Going-in convention throughout: year-one NOI over the purchase price. Whether the price includes closing costs and whether reserves sit above the NOI line are choices this page cannot make for you; state them with the number, and hold them constant across every comparable.
A cap rate is one division on one NOI. A real underwriting builds that NOI from the rent roll and the T-12, sizes the debt on the lender's three tests, and carries the deal to an exit. Altyst reads the documents and builds all of it.
One division, three rearrangements
A cap rate is a property's annual net operating income divided by its price. Because it is one identity, knowing any two of the three figures gives you the third: value is NOI divided by the cap rate, and NOI is value times the cap rate. Which rearrangement you need depends on which side of the deal you are on. A buyer checks the cap rate a price implies. A seller solves the price a target cap rate implies. An underwriter works backwards from an asking price to the NOI it assumes, and then asks whether the trailing twelve months comes anywhere near it.
The thing to hold onto is that a cap rate is a price, quoted as a yield. A property at a 6.0% cap costs 16.7 times its NOI; at a 5.0% cap it costs 20 times. Lower cap, richer price. That also means the relationship is a reciprocal, and reciprocals of small numbers are violent: the same 25 basis points is worth more when caps are low, and every dollar of NOI you got wrong is capitalized at one over the cap rate.
A worked example
Take the property the calculator loads with: a $10,000,000 price producing $600,000 of NOI, which is a 6.00% going-in cap rate and a 16.67x NOI multiple. One dollar of NOI at that cap is worth $16.67 of value.
- Move the cap, hold the NOI. The same $600,000 is worth $10,909,091 at 5.5% and $9,230,769 at 6.5%. A quarter point down adds $434,783 of value while a quarter point up removes $400,000, which is the reciprocal's asymmetry in one row.
- Move the NOI, hold the cap. Find $50,000 of extra income and the implied value rises by $833,333. This is why sellers market on pro forma NOI, and why a buyer rebuilds the number line by line before quoting a cap rate back.
- Small errors, large prices. At a 5.4% cap, one dollar of overstated NOI is $18.52 of overstated value, so a $55,000 reserve line quietly left out moves the implied value by more than a million dollars.
Going-in, stabilized, and exit
This calculator computes the going-in cap rate: year-one NOI over the purchase price. Two cousins share the name and answer different questions. The stabilized cap rate, often called yield on cost, divides the NOI a plan is expected to produce by the total cost of producing it, purchase price plus the renovation or lease-up spend. On a value-add deal it is the more honest yield, because the going-in number is depressed by exactly the problem you are buying. The exit cap rate is applied to forward NOI at the end of the hold to estimate the sale price, and it is one of the largest and least evidenced assumptions in any underwriting: the usual institutional convention is to exit 25 to 50 basis points above the going-in rate, because the building will be older and the capital market unknown.
Mixing these up is not a technicality. A deal marketed on a stabilized cap rate against an as-is price, or underwritten to a flat exit on a compressing market story, is quoting the flattering member of the family. The formula is identical each time; what changes is which NOI and which price, so name both whenever you say the word cap.
What a cap rate cannot tell you
It cannot size the debt. A lender runs loan to value, a minimum debt service coverage ratio, and a minimum debt yield, and funds the smallest answer; the cap rate appears in none of those tests directly. Two buildings at identical cap rates can support very different loans once the coupon, the amortization, and the lender's floors differ, and whether coverage or debt yield binds flips with the rate environment. The loan sizing calculator runs the three tests and names the binding one.
It is also not a return. It is an unlevered year-one yield that knows nothing about growth, capital expenditure, financing, taxes, or the exit. Two deals at the same going-in cap can produce very different IRRs and equity multiples once those enter. The comparison of the three metrics, and when each one is the right lens, is written out in cap rate versus cash on cash versus IRR.
Which NOI belongs in the numerator
The discipline that makes a cap rate comparable is denominator hygiene, and most disputes about where a deal is priced dissolve once three questions are answered: which NOI is in the numerator, whether reserves are deducted above the line, and whether the price includes closing costs. A lender will typically apply its own vacancy factor, add a management fee whether or not the seller paid one, and deduct a replacement reserve, all of which pull the underwritten NOI below the marketed one. How that number gets built from the documents is its own subject; the method is written out in how to calculate NOI, and the glossary entry carries the formal definition, the formula, and the common mistake.
What this page does not do
It does not tell you what cap rate a market is paying. That number moves, it differs by asset class and submarket, and a static page asserting one would be stale the week it shipped; get it from closed comparables whose NOI you have rebuilt on your own conventions. How to judge whether a rate is high or low for the risk, without pretending to know your market's number, is written out in what is a good cap rate. And it is not advice: it is arithmetic on the numbers you typed, stated with the conventions it uses, and nothing more.
Questions
What is a cap rate?
A property's annual net operating income divided by its price or value, expressed as a percentage. It is the unlevered first-year yield on the purchase price, and it is really a price quoted as a yield: saying a property trades at a 6.0% cap and saying it trades at 16.7 times NOI are the same statement. Lower cap rates mean richer prices.
What is a good cap rate?
There is no number that answers that, and a page that gives you one is guessing. A cap rate embeds a view about growth and risk together: buyers accept a low going-in yield where they expect income to grow and the asset feels safe, and demand a high one for the opposite reasons. A 7% cap on a single-tenant building with four years of lease term left and a 7% cap on a stabilized apartment property describe different risks that happen to share a number. Compare within one market, one asset class, and one NOI convention, and rebuild the comparables' NOI on your own conventions before drawing conclusions.
What is the difference between going-in, stabilized, and exit cap rates?
Going-in uses year-one NOI and the purchase price, which is what this calculator computes. Stabilized uses the NOI the property is expected to produce after lease-up or renovation, against the total cost of getting there; on a value-add deal it is the more honest yield, and the spread between it and the market cap rate is the margin the plan has to earn. Exit, also called terminal, is the rate applied to forward NOI at the end of the hold to estimate the sale price. Quoting one while meaning another is how two people argue about the same building at the same price.
Can I size a loan from the cap rate?
No, and this is the most common way the number gets over-used. A lender runs loan to value, a minimum debt service coverage ratio, and a minimum debt yield, then funds the smallest answer. The cap rate tells you what the income costs to buy; it says nothing about what the income can carry at a given coupon and amortization. Two properties at the same cap rate support very different loans when rates or lender tests differ. The loan sizing calculator on this site runs all three tests and names the one that binds.
Which NOI goes in the numerator?
State it, because the answer changes the number. NOI can be trailing twelve months, normalized, or projected; the price can be gross or net of closing costs; replacement reserves may or may not be deducted above the line. A broker quoting a 5.0% cap on pro forma NOI and a buyer computing a 5.9% on normalized trailing NOI are looking at the same building and the same price, and neither is lying. A quoted cap rate that does not say which conventions it used is a rumor.
Does the cap rate include mortgage payments or taxes?
No. NOI is measured before debt service, income taxes, depreciation, and capital expenditure, so the cap rate is an unlevered yield: it describes the property, not your financing of it. The levered cousin is cash on cash, which divides year-one cash flow after debt service by the equity invested, and it moves with the loan while the cap rate does not.
Can I put this calculator on my own website?
Yes, and it takes one line of HTML. There is no account and no key to request, so nothing can expire and break your page a year from now. The framed version loads no advertising script, ours or anyone else's, and sets no cookie on your readers. Keep the credit line under it and it is yours to use, including on a commercial site. The code is on the embed page.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The cap rate is one cell of the model
Altyst reads the offering memorandum, the rent roll, and the T-12, builds the NOI this page asks you to type, and carries it through debt, leasing, exit, and the Excel workbook.