Cap Rate Calculator
How cap rate works
Cap Rate = NOI / Property Value. NOI is gross income minus operating expenses, with debt service, depreciation, and capital expenditures excluded. Cap rate measures the unlevered yield — what an all-cash buyer would earn before financing.
Higher cap rates signal higher risk or weaker markets (Class-C multifamily at 7–9%). Lower cap rates signal stabilized, institutional-grade assets in strong markets (Class-A at 4.5–5.5%). The right cap rate depends on asset class, market, condition, and the prevailing interest-rate environment.
For the full long-form guide, see /learn/cap-rate.
Frequently asked questions
What is a good cap rate?
There is no universal answer. Class-A multifamily in top metros typically trades at 4.5–5.5%, Class-B in secondary markets at 5.5–7.0%, and Class-C in tertiary markets at 7.0–9.0%. Always benchmark against the 10-year Treasury — a healthy cap-rate spread is 200–400 basis points.
Does cap rate include the mortgage?
No. Cap rate is unlevered and does not include debt service, principal payments, or financing costs. It measures the property's yield independent of financing.
What is the difference between cap rate and cash-on-cash return?
Cap rate is unlevered and ignores financing. Cash-on-cash return incorporates the financing impact — it is the right metric for leveraged buyers focused on current cash flow. Use the cash-on-cash calculator for that.
Should I include vacancy in the income input?
Either approach works as long as you are consistent. Most professional underwriters reduce gross scheduled income by a vacancy and credit loss factor (5–10% for stabilized, 10–15% for value-add) before subtracting operating expenses.