Investor Tools

Cap Rate Calculator

Calculate capitalization rate, implied value, or required NOI for any commercial real estate investment — with a ±75 bps cap-rate sensitivity table, optional price-per-SF math, and a 2026 Florida cap rate reference by asset class.

Solve for…

Enter NOI + purchase price below — the third number is calculated for you.

Net Operating Income (NOI) — Annual

Annual rent minus operating expenses (or just base rent for absolute NNN deals)

Purchase Price

Contract price, asking price, or your estimate of current market value

Building Size (optional)

Adds price-per-SF and NOI-per-SF to your results

Cap Rate

6.25%

$125,000 ÷ $2,000,000 = 6.25%

NOI multiple

16.0×

price ÷ annual NOI (= 1 ÷ cap rate) — years of NOI to recoup the price, before rent growth

Monthly NOI

$10,417

annual NOI ÷ 12 — net income before debt service

Price per SF

—

add building SF above to see per-SF pricing

What this means

A 6.25% cap rate means buyers are paying 16.0× annual NOI — every $100,000 of price produces $6,250 of net income per year. A lower cap rate = richer pricing per dollar of income (typically lower perceived risk); a higher cap rate = more yield demanded as compensation for risk.

Cap Rate Sensitivity

Value of the same $125,000 NOI if the applied cap rate moves ±75 bps — small cap moves swing price a lot.

Cap Rate	Implied Value	Δ vs applied	Δ %
5.50%-75 bps	$2,272,727	+$272,727	+13.6%
5.75%-50 bps	$2,173,913	+$173,913	+8.7%
6.00%-25 bps	$2,083,333	+$83,333	+4.2%
6.25%applied	$2,000,000	—	—
6.50%+25 bps	$1,923,077	−$76,923	−3.8%
6.75%+50 bps	$1,851,852	−$148,148	−7.4%
7.00%+75 bps	$1,785,714	−$214,286	−10.7%

Pure arithmetic on your inputs — not a prediction of where cap rates will move.

2026 Florida Cap Rate Reference

Highlighted rows: asset types whose typical range brackets your 6.25% applied cap rate.

Asset Type	Typical Cap Rate
Chick-fil-A (ground lease)	3.75% - 4.75%
McDonald's (ground lease)	4.50% - 5.25%
Starbucks NNN	4.75% - 5.50%
AutoZone / O'Reilly NNN	5.25% - 6.00%
CVS Pharmacy	5.50% - 6.50%
Dollar General NNN	5.75% - 6.50%
Walgreens Pharmacy	6.00% - 7.00%
Family Dollar NNN	6.00% - 6.75%
Multifamily Class A	5.00% - 5.75%
Industrial / Warehouse	5.50% - 6.50%
Retail Shopping Center	6.50% - 7.50%
Suburban Office	7.00% - 8.50%
Medical Office Building	6.00% - 6.75%

Estimates only — for informational and educational use. Not investment, tax, legal, or accounting advice. Outputs depend entirely on the inputs you provide and are not a guarantee of future performance. Verify any deal with your CPA, attorney, and lender. See our Terms of Service.

Investment Math

Cap Rate Math Explained

What Is a Cap Rate?

Capitalization rate (cap rate) is the ratio of a property's Net Operating Income (NOI) to its purchase price or current value. It's the most widely used metric for comparing commercial real estate investments — essentially the unlevered yield of the property.

Cap Rate = NOI ÷ Purchase Price

The same relationship rearranges two other ways, and every cap rate question you will run into is one of these three:

Cap Rate = NOI ÷ PriceValue = NOI ÷ Cap RateRequired NOI = Price × Cap Rate

How to Calculate a Cap Rate, Step by Step

The division is trivial. Getting NOI right is the part that actually decides whether your cap rate means anything. NOI is built from the rent roll down, in four steps:

1. Start with gross potential rent
Every dollar the property would collect if fully leased at contract rent for twelve months, plus recoverable expense reimbursements and any other income (parking, signage, storage).
2. Subtract vacancy and credit loss
Deduct an allowance for units that sit empty between tenants and rent you bill but never collect. What remains is effective gross income (EGI). A single-tenant NNN property with a corporate guarantee carries a much smaller allowance than a multi-tenant strip center.
3. Subtract operating expenses
Property taxes, insurance, common area maintenance, landlord-paid utilities, property management, and a replacement reserve. On a true NNN lease most of these are reimbursed by the tenant, which is exactly why NNN assets trade at tighter cap rates.
4. Do NOT subtract debt service, depreciation, or capex
Mortgage principal and interest, depreciation, income taxes, capital improvements, and leasing commissions all sit below the NOI line. Leave them out and the cap rate describes the property. Put them in and it describes your loan — which makes the number useless for comparing deals.

Worked Example: A $2.4M Retail Property

The numbers below are a hypothetical illustration chosen to make the arithmetic clean — not a listing, a comp, or a statement about current market pricing. Say a multi-tenant retail building is offered at $2,400,000. Here is the NOI build-up:

Gross potential rent	$210,000
Less vacancy & credit loss (5%)	−$10,500
Effective gross income (EGI)	$199,500
Less operating expenses	−$31,500
Net operating income (NOI)	$168,000

Now apply the formula

$168,000 NOI ÷ $2,400,000 price = a 7.00% cap rate.

Run it backwards to set an offer. If your target yield is 7.50%, the most you can pay is $168,000 ÷ 0.075 = $2,240,000 — $160,000 below ask. If a buyer with cheaper debt will accept 6.50%, the same income supports $168,000 ÷ 0.065 = $2,584,615. Identical building, identical rent roll, $344,615 of value swing from one point of view to another.

Run it the third way to underwrite a value-add plan. To justify the $2,400,000 ask at a 7.25% cap you would need $2,400,000 × 0.0725 = $174,000 of NOI — $6,000 more than the property produces today. That gap is your business plan: raise rent, cut expenses, or lease the vacancy.

The sensitivity table in the calculator above does this same exercise on your own inputs at ±25, ±50, and ±75 basis points, so you can see how much of your return depends on the exit cap rate you are assuming rather than on the property itself.

How to Use Cap Rates

Compare Properties
At the same cap rate, two properties with similar NOIs should trade at similar prices. Different cap rates reflect perceived risk, location quality, tenant credit, and lease term.
Estimate Value from NOI
If you know a property's NOI and the typical cap rate for its asset class, you can estimate value. This is how appraisers apply the 'income approach' to valuation.
Set an Offer Price
Divide the NOI by your target cap rate to determine your maximum offer price. If market cap rates are 6.0% and NOI is $120K, offer no more than $2M.
Understand Market Dynamics
Cap rates move inversely with prices. When cap rates compress (go down), prices rise. When cap rates expand (go up), prices fall. Interest rates, tenant demand, and investor sentiment drive cap rate movement.

Cap Rate Limitations

Cap rate is a snapshot — it doesn't account for future rent growth, leverage, tax benefits, tenant credit changes, or capital expenditures. Always combine cap rate analysis with cash-on-cash return, DSCR, IRR projections, and tenant credit analysis for a complete picture.

Cap Rate FAQs

How do you calculate a cap rate?

Divide the property's annual net operating income (NOI) by its purchase price. Example: $125,000 NOI ÷ $2,000,000 price = 6.25% cap rate. NOI is income after operating expenses but before mortgage payments.

What does a lower cap rate mean?

A lower cap rate means buyers are paying more for each dollar of income — richer pricing that typically reflects lower perceived risk, such as stronger tenant credit, a longer lease term, or a better location. A higher cap rate means buyers are demanding more yield as compensation for risk.

Does the cap rate include mortgage payments?

No. Cap rate is an unlevered metric — NOI is calculated before debt service, so the cap rate is the same regardless of how the purchase is financed. To measure returns with financing in place, use cash-on-cash return and DSCR alongside cap rate.

What is a good cap rate for commercial real estate?

There is no single "good" cap rate — it depends on asset type, tenant credit, lease term, and location. Compare a deal against typical ranges for its asset class, like the Florida reference table in the calculator above, rather than against a universal number.

What is the difference between cap rate and cash-on-cash return?

Cap rate is unlevered: annual NOI divided by purchase price, ignoring financing. Cash-on-cash return is levered: annual pre-tax cash flow after debt service divided by the actual cash you invested. Cap rate is best for comparing properties; cash-on-cash measures how your equity performs.

What is NOI, and which expenses belong in it?

Net operating income is effective gross income minus operating expenses. Include property taxes, insurance, common area maintenance, utilities the landlord pays, property management, and a replacement reserve. Exclude mortgage principal and interest, depreciation, income taxes, capital improvements, and one-time leasing commissions — those sit below the NOI line and would make the cap rate reflect your financing rather than the property.

How do you calculate property value from a cap rate?

Rearrange the formula: Value = NOI ÷ Cap Rate. A property with $168,000 of NOI valued at a 7.00% cap is worth $2,400,000 ($168,000 ÷ 0.07). This is the income approach appraisers use, and it is how buyers translate a target yield into a maximum offer price.

How much NOI do I need to hit a target cap rate?

Multiply instead of dividing: Required NOI = Price × Target Cap Rate. To earn a 7.25% cap on a $2,400,000 purchase you need $174,000 of NOI. That framing is useful on value-add deals, where you are underwriting the rent growth or expense reduction needed to reach your yield.

Why do cap rates move when interest rates move?

Buyers price real estate against the yield available elsewhere and against their cost of debt. When borrowing costs rise, buyers require more yield to make a deal work, so they bid less for the same NOI and cap rates expand. When borrowing costs fall, competition pushes pricing up and cap rates compress. Because value is NOI divided by the cap rate, this movement changes price even when the property's income has not changed at all.

Where to Take This Next

A cap rate tells you what a property yields today. These pages cover what to compare it against, and what to check before you commit capital.

Ready for a Full Deal Analysis?

Cap rate is just the start. Use our Deal Analyzer for a complete institutional-grade underwriting with IRR, DSCR, cash-on-cash, and sensitivity analysis.

Open Deal Analyzer Cap Rate vs Cash-on-Cash

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