Cap Rate Calculator
Calculate cap rate from rent, operating expenses and purchase price, and see the net operating income behind it. Free, no signup — and it runs the same engine that underwrites deals inside DealWise AI.
The deal
Operating expenses
Going-in cap rate
7.75%
NOI ÷ purchase price, before debt and capex.
- Gross revenue
- $1,250,000
- Operating expenses
- $475,000
- Net operating income
- $775,000
- Expense ratio
- 38.0%
How to calculate cap rate on commercial real estate
The capitalization rate — or cap rate — is the most widely used metric for evaluating commercial real estate investments. It measures the relationship between a property’s net operating income (NOI) and its purchase price, expressed as a percentage. A higher cap rate generally indicates higher risk and higher potential returns, while a lower cap rate suggests a more stable, lower-yield investment.
To calculate cap rate, you first determine the property’s gross revenue — the total annual rent collected from all tenants. Next, subtract operating expenses including property taxes, insurance, and common area maintenance (CAM) charges to arrive at net operating income. Finally, divide NOI by the purchase price or current market value.
Cap Rate = NOI ÷ Purchase Price
For example, a property generating $300,000 in NOI with a purchase price of $4,000,000 has a cap rate of 7.5%. This calculator handles the entire computation — enter your rent, expenses, and purchase price, and it instantly returns your cap rate along with a full expense breakdown.
Cap rates vary significantly by asset class, market, and property quality. Industrial properties in strong logistics markets might trade at 5–6% cap rates, while value-add retail or office properties in secondary markets might command 8–10%. Understanding cap rate in context is essential for making informed acquisition decisions.
What this cap rate calculator includes
Flexible rent input
Enter annual rent as $/SF or as a total annual amount — the calculator handles both formats.
Operating expense breakdown
Input property taxes, insurance, and CAM charges individually as $/SF, monthly, or annual figures.
Net operating income
Automatically calculates NOI by subtracting total operating expenses from gross revenue.
Cap rate calculation
Divides NOI by purchase price to give you the going-in cap rate as a percentage.
Gross revenue display
See total annual gross revenue based on your rent inputs and building square footage.
Expense ratio
Operating expenses as a share of gross revenue — the fastest read on whether an expense load is normal.
Example: a 50,000 SF industrial acquisition
Sample inputs
- Building SF
- 50,000
- Purchase price
- $10,000,000
- Annual rent
- $25.00/SF
- Taxes
- $3.00/SF
- Insurance
- $1.50/SF
- CAM
- $5.00/SF
With 50,000 SF leased at $25/SF, gross revenue is $1,250,000 annually. Operating expenses total $9.50/SF ($3.00 taxes + $1.50 insurance + $5.00 CAM), or $475,000 per year. Subtracting expenses from revenue gives a net operating income of $775,000.
Dividing $775,000 NOI by the $10,000,000 purchase price yields a cap rate of 7.75%. That is the unleveraged return the property generates on your purchase price at the current income and expense structure — before debt service and capital expenditures.
The expense ratio here is 38% of gross revenue, which is normal for a NNN industrial asset where most operating costs are reimbursed. A gross-leased office building carrying the same expenses would show a materially different picture, which is why the lease structure matters as much as the number.
Frequently asked questions
What is a cap rate in commercial real estate?
The capitalization rate (cap rate) is the ratio of a property's net operating income to its purchase price or market value. It represents the unleveraged annual return an investor can expect from a property, expressed as a percentage. Cap rates are the standard metric for comparing commercial real estate investment opportunities across different properties and markets.
What is a good cap rate for commercial real estate?
Cap rates vary by asset class, location, and market conditions. Generally, stabilized Class A properties in primary markets trade at 4–6%, while value-add properties in secondary markets may trade at 7–10% or higher. A good cap rate depends on your investment strategy — lower cap rates typically indicate lower risk and more stable cash flow, while higher cap rates offer more yield but may carry more risk.
How do you calculate NOI?
Net operating income (NOI) equals gross rental revenue minus operating expenses. Operating expenses include property taxes, insurance, common area maintenance (CAM), management fees, and repairs/reserves. NOI does not include debt service, capital expenditures, or income taxes — it measures the property's operating performance independent of financing and ownership structure.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures the property's unleveraged return (NOI ÷ purchase price), while cash-on-cash return measures the leveraged return on your equity investment (annual cash flow after debt service ÷ total equity invested). Cash-on-cash accounts for financing, so it reflects what you actually earn on the money you put in. A property with a 7% cap rate might produce a 10–12% cash-on-cash return with favorable leverage.
Does cap rate include debt service?
No. Cap rate is calculated before debt service — it uses NOI (income minus operating expenses) divided by the purchase price. This makes cap rate useful for comparing properties on an equal basis regardless of how they are financed. To understand your actual return after financing, use cash-on-cash return or DSCR metrics.
More commercial real estate calculators
Pair the cap rate calculator with these tools for a complete investment analysis.
Cash-on-cash calculator
Year-one yield on the cash you put in, and whether the leverage is helping.
IRR calculator
Levered IRR and equity multiple from the equity, the cash flow and the exit.
DSCR calculator
Debt service coverage from NOI and annual debt service, and the max loan it supports.
Loan payment calculator
Monthly payments with interest-only periods and balloon payments.
Property value calculator
Price per SF for building and land, plus annual rent potential.
Lease comparison calculator
Compare up to four lease proposals on net effective rent and NPV.
TI amortization calculator
Amortize tenant improvement costs across the lease term.
Lease commission calculator
Leasing commissions with stair-step rents and broker splits.
Purchase commission calculator
Broker fees and splits on an acquisition, including co-broker arrangements.
Related guides
What is cap rate?
The complete guide to the most important metric in CRE.
How to calculate cap rate
Step-by-step walkthrough with worked examples.
What is a good cap rate?
Current benchmarks by asset class and market.
CAM charges & gross-up
How recovery works per lease type, and the five things to check in a reconciliation.
What is NOI?
The income number that drives cap rate.
Cap rate vs NOI
How the two metrics work together.
How to analyze a CRE deal
The full framework, from rent roll to decision.
A cap rate is one number. Underwriting is the rest of them.
DealWise AI derives NOI from your actual rent roll — lease by lease, with escalations, reimbursements and rollover — then projects cash flow, debt service and exit value across the hold. Free to start.