Cap Rate Calculator

How to Use the Cap Rate Calculator

The calculator works from four numbers you can pull from any offering memorandum or rent roll:

1. Property value — the asking price, your offer, or an appraised value.
2. Annual gross rent — the rent the property would collect if every unit or suite were leased for the full year.
3. Vacancy rate — the share of that rent you expect to lose to empty space and non-payment. Use the property's own history if you have it, or the submarket vacancy rate from a broker report.
4. Operating expenses — everything it costs to run the property for a year: property taxes, insurance, repairs, management, utilities the owner pays, and reserves. Leave out mortgage payments, depreciation and income tax.

The calculator subtracts vacancy from gross rent to get effective gross income, subtracts operating expenses to get net operating income (NOI), and divides NOI by the property value.

Worked Example

A small retail strip is listed at $2,000,000. It brings in $220,000 a year in rent when fully leased, the local vacancy rate is 5%, and annual operating expenses are $66,000.

At 7.15%, the property earns 7.15 cents of income for every dollar of price before any financing. Whether that is a good deal depends on the property type and market; our guide to good cap rates has 2026 ranges by asset class.

Three Ways Investors Use This Calculator

Check an asking price. Enter the seller's NOI and the asking price. If the result is well below cap rates for similar recent sales, the property is priced aggressively.

Set your own offer. Rearrange the formula: Value = NOI ÷ target cap rate. If you need a 7.5% cap rate and the NOI is $143,000, you can pay about $1,906,700.

Stress-test the seller's numbers. Offering memoranda often use "pro forma" rent and low vacancy. Raise the vacancy rate to the submarket average and add any expenses the seller left out (management is the most common omission). The cap rate you get is the one you are really buying.

Common Mistakes

• Including the mortgage. Cap rate measures the property, not your financing. Debt payments are not operating expenses. To see how a loan changes your return, use the DSCR calculator or the commercial mortgage calculator.
• Using gross rent instead of NOI. Dividing gross rent by price gives a "gross yield" that can be several points higher than the real cap rate.
• Forgetting reserves. Roofs, parking lots and HVAC units wear out. Lenders typically underwrite $0.15–$0.30 per square foot a year for replacement reserves on commercial property; leaving them out flatters the cap rate.
• Mixing time periods. Use a full year of income and a full year of expenses from the same period — trailing 12 months (T-12) is standard.

Questions About This Calculator

Does the result update as I type? Yes. Every change recalculates instantly, and you can download the result as a PDF report to share with a partner or lender.

What vacancy rate should I use? For a fully leased property with long leases, many investors still underwrite 3–5% to cover future turnover. For multi-tenant or shorter-lease properties, use the higher of the property's history and the submarket average.

Can I use this for residential rentals? Yes. The math is the same for a fourplex as for an office building, though small residential properties are usually priced on comparable sales rather than cap rates.

Need NOI first? Build it line by line in the NOI calculator, then bring the result back here.