Calculate the capitalization rate from NOI and value.
Calculated locally in your browser.
Understanding your result
NOI is income after operating expenses but before mortgage payments.
Formula and method
Cap rate = net operating income ÷ property value × 100.
Assumptions and limitations
Cap rate excludes financing and capital growth, and net operating income must exclude mortgage payments. It is a snapshot, not a full return measure.
Worked example
A 12,000 NOI on a 200,000 property is a 6% cap rate.
How it compares
| Cap rate | Typically means |
|---|---|
| Higher | Higher income return, often higher risk |
| Lower | Lower return, often lower risk / prime location |
How to use this tool
- Enter the annual net operating income.
- Enter the property value.
Common mistakes to avoid
- Including mortgage payments in NOI (they are excluded).
About the Cap Rate Calculator
The capitalization rate compares a property’s net operating income to its value, helping compare investments.
Who should use this tool
Commercial and residential property investors comparing income-producing assets.
Benefits
- Compare properties on a like-for-like income basis.
- Estimate value from income, or income from a target cap rate.
- Gauge relative risk between markets.
Practical use cases
- Screening commercial property deals.
- Comparing two rental investments.
- Estimating value from net operating income.
Frequently asked questions
Is a higher cap rate better?
Higher cap rates mean higher returns but often higher risk; context matters.