🏘️ Cap Rate Calculator
Calculate real estate capitalization rate from net operating income and property value.
What Is Cap Rate in Real Estate?
Cap Rate = Net Operating Income ÷ Property Value. It measures a property's unleveraged return — what you'd earn if you paid cash with no mortgage. A 6% cap rate means you earn 6% of the property's value per year in net income. Higher cap rates generally indicate higher risk or lower-demand markets; lower cap rates indicate premium locations with stable income.
Cap Rate Benchmarks (2026)
Prime urban residential: 3–5%. Suburban residential: 5–7%. Class B/C residential: 7–10%. Commercial retail: 5–8%. Industrial: 4–6%. Rural/secondary markets: 8–12%+. Cap rates vary significantly by market — always compare to local comparables, not national averages.
People Also Ask
It depends on your goal. Higher cap rate (8%+) means more income relative to price — typically in higher-risk or lower-demand areas. Lower cap rate (3–5%) means less income relative to price — typically in premium, stable markets where appreciation is the primary return driver. Neither is universally better.
No — cap rate is calculated using NOI before any financing costs. It measures the property's intrinsic return independent of how it's financed. To evaluate returns with a mortgage, use cash-on-cash return instead, which accounts for your actual cash invested and debt service.