Cap rate calculator: the yield at your price, or the price at your yield
Build NOI from the rent and expenses, or type one in. Then get the cap rate at the asking price, the value at the cap rate you want, and a table of values a half point either side.
A bit rich vs 7.00% target
Cap rate at this price
6.68%
$38,428 of NOI divided by the $575,000 price is a 6.68% cap rate. At 7.00% the same income is worth $548,969.
- Net operating income / yr
- $38,428
- Cap rate at the price
- 6.68%
- Value at 7.00%
- $548,969
- Income collected / yr
- $66,552
- Operating expenses / yr
- $28,124
- Expense ratio
- 42.3%
- Cap rate minus loan rate
- -0.57 pts
| Cap rate | Value | vs price |
|---|---|---|
| 6.00% | $640,464 | $65,464 |
| 6.50% | $591,198 | $16,198 |
| 7.00% | $548,969 | -$26,031 |
| 7.50% | $512,371 | -$62,629 |
| 8.00% | $480,348 | -$94,652 |
Cap rate is NOI divided by price. NOI is the income you collect minus operating expenses, before any mortgage payment. When the cap rate is below your loan rate, every borrowed dollar costs more than the property earns on it.
The method
- Income collected = (monthly rent + other income) × 12, less vacancy.
- Operating expenses = taxes + insurance + management (a share of income collected) + everything else you pay to run the building.
- NOI = income collected minus operating expenses. If you type an NOI, the calculator uses yours and skips the builder.
- Cap rate = NOI / price. Value = NOI / the cap rate you want.
The stamp compares the cap rate at the asking price with the one you want: at or above it reads "Priced to buy", within half a point below reads "A bit rich", and further below reads "Priced high".
Where to get the cap rate you want
From sales, not listings: what similar buildings in the same area actually sold for, divided into their NOI. A broker's opinion or an appraisal can give you that. Then check the deal from the lender's side. For 1-4 units, run the DSCR calculator or see DSCR loans. For 5 or more units, see multifamily bridge loans, which test the stabilized building at 1.25x. When you are ready, send us the deal.
Questions people ask
How do you calculate cap rate?
Divide net operating income by the price. In the example, a fourplex nets $38,427.84 a year after vacancy and expenses. $38,427.84 / $575,000 = 6.68%.
How do you get value from a cap rate?
Run it backward: value = NOI / cap rate. The same $38,427.84 at a 7% cap rate is worth $38,427.84 / 0.07 = $548,969, which is $26,031 under the asking price.
How much does half a point of cap rate move the price?
A lot, and more at lower cap rates. At 7.00% the example is worth $548,969. At 6.50% it is worth $591,198. That half point is $42,228 on a property earning under $40,000 a year, which is why arguing over the cap rate matters more than arguing over the rent.
What goes into NOI, and what stays out?
In: rent and other income you actually collect, less taxes, insurance, management, repairs, utilities you pay and any HOA. Out: the mortgage, depreciation and income taxes. Replacement reserves are the gray area. Some sellers leave them out to make the cap rate look higher, so ask how an advertised cap rate was figured before you compare it.
Is a cap rate below my loan rate a problem?
It means each borrowed dollar costs more than the property earns on it. At a 6.68% cap rate and a 7.25% loan rate, adding debt lowers your return on cash instead of raising it. Buyers accept that when they expect rents or value to grow; just make sure that is a decision and not a surprise.
Numbers look right?
Send the deal. We check it against the lender's terms and come back with a loan.