A cap rate is the fastest way to size up a commercial property, and this free cap rate calculator runs the number for you in seconds. Enter the property's net operating income and its value or price, and you will get the cap rate right away. Flip it around and you can enter a cap rate and an income to estimate what a property is worth.
If you are newer to this, think of a cap rate as the ROI for real estate. It is one of the most important metrics in the business because it lets you compare very different properties on the same footing, quickly. Here is the tool, and below it I will walk through the formula, how to read the result, and what actually counts as a good cap rate.
Cap rate, in one line: a cap rate is the unleveraged annual return a property produces, calculated as net operating income (NOI) divided by the property's value. A $500,000 building with $50,000 of NOI trades at a 10% cap rate.
What's a good cap rate? roughly 5% is a premium, low-risk deal, 6% to 7% is fair market for a stabilized property, and 8% or higher usually means added risk or real upside. The right number depends on the asset and the market.
The Cap Rate Formula
The formula is simple: cap rate = net operating income ÷ property value. NOI is the property's annual income after operating expenses but before any loan payment, and value is the price or current market value.
Here is a quick example. Say you are looking at a property that generates $50,000 in annual net operating income and its market value is $500,000. Divide the NOI by the value, $50,000 divided by $500,000, and you get 10%. That 10% is the annual return you could expect if you bought the property outright with no financing. Scale it up and the math is identical: a $2,000,000 building with $140,000 of NOI is a 7% cap rate.
How to Calculate a Cap Rate, Step by Step
You only need two inputs, and the calculator handles the division. Getting the inputs right is the part that matters.
1. Find the net operating income. Start with the property's annual income, then subtract operating expenses like taxes, insurance, management, and maintenance. Do not subtract your mortgage, because cap rate is unleveraged. If you want to double-check this figure, run it through the commercial real estate calculators first.
2. Find the value or price. Use the purchase price you are considering, or the current market value if you already own it.
3. Divide NOI by value. That is your cap rate. A property with $70,000 of NOI at a $1,000,000 price is a 7% cap rate. Enter those two numbers above and you will see it instantly.
What Is a Good Cap Rate?
This is the question everyone asks: is a good cap rate 5% or is it 10%? The honest answer is that it depends on your risk tolerance on that specific deal. A higher cap rate usually means a higher potential return, but it often comes with more risk, like a weaker tenant, a shorter lease, or a building with deferred maintenance. A lower cap rate usually means a safer, more stable investment with a lower return.
Think about the two ends of the range. Properties in booming, high-demand areas often trade at lower cap rates, maybe 4% to 6%, because buyers see them as safer bets. A new Walgreens or Starbucks on a long-term lease is the classic example: nice building, credit tenant, and you barely have to do anything as the landlord, so investors accept a lower return. On the other end, properties in developing or riskier areas might carry cap rates of 8% to 12% or more, signaling higher potential return but also more risk.
One pro tip: do not make a decision on cap rate alone. It is a great starting point, but market trends, property condition, and future growth matter just as much. Use the cap rate as one tool in your toolbox. For the full 2026 breakdown by asset class and what makes a good cap rate in each, see my guide to what a good cap rate is.
Watch: What Is A Cap Rate? (And How to Calculate It)
Using a Cap Rate to Find Property Value
Flip the formula and a cap rate becomes a valuation tool: value = NOI ÷ cap rate. If a property produces $140,000 of NOI and comparable deals are trading at a 7% market cap rate, it is worth about $2,000,000. The calculator above does this in reverse mode, so you can enter an income and a cap rate to estimate value.
The powerful part is how sensitive value is to the cap rate. Hold that same $140,000 of income and watch what a two-point swing does:
| Market cap rate | Same NOI ÷ cap rate | Value |
|---|---|---|
| 6% cap rate | $140,000 ÷ 0.06 | about $2,333,000 |
| 7% cap rate | $140,000 ÷ 0.07 | about $2,000,000 |
| 8% cap rate | $140,000 ÷ 0.08 | about $1,750,000 |
That is roughly a $583,000 swing in value from a two-point move in the cap rate, with zero change to the building's income. It is the same lesson from the other direction: given the same annual cash flow, you would rather buy at a higher cap rate and pay less, but you have to weigh that against the added risk. Growing your NOI and buying before cap rates compress are two of the most reliable ways to build value in commercial real estate.
Watch: How Cap Rates Impact Commercial Properties
Cap Rate Calculator FAQ
How do you calculate the cap rate?
Divide the property's net operating income by its value or purchase price. If a building produces $50,000 of NOI and is worth $500,000, the cap rate is $50,000 divided by $500,000, or 10%. Enter those two numbers in the calculator above and it does the math for you.
What is the cap rate formula?
Cap rate equals net operating income divided by property value. NOI is your annual income after operating expenses but before debt. Value is the purchase price or current market value. The result is expressed as a percentage.
Does the cap rate include the mortgage?
No. Cap rate is unleveraged, which means it ignores your loan and measures the property's return as if you paid all cash. If you want a number that factors in your financing, use cash-on-cash return instead, which compares your annual cash flow to the actual cash you put in.
What does a 7.5% cap rate mean?
It means the property's net operating income equals 7.5% of its price. Put another way, you are paying about $13.30 for every $1 of annual NOI, since 1 divided by 0.075 is roughly 13.3.
Is a 5% cap rate good?
A 5% cap rate is a premium, low-risk number. You see it on high-quality, stabilized assets like a new Walgreens or Starbucks on a long-term lease, where you pay more per dollar of income in exchange for stability. Whether that is good depends on your goals, but it is not a bargain, it is a safe bet.
Is a 6% cap rate good?
A 6% cap rate is roughly fair market for a stabilized commercial property in 2026. It sits between the premium, low-risk deals and the higher-yield, higher-risk ones, so for many stabilized assets a 6 is a reasonable, market-rate price.
What is a good cap rate?
There is no single good number. A higher cap rate means a higher potential return but usually more risk, and a lower cap rate means a safer, more stable deal with lower returns. A good cap rate really comes down to your risk tolerance on that individual deal and the asset type you are buying.
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Explore CRE CentralWant to go deeper on how cap rate fits with the rest of your underwriting? Start with the complete cap rate guide, then learn how to analyze a commercial deal from start to finish.