Cap Rate Calculator
NOI ÷ price = cap rate — plus the two reverse solves: the price your target yield justifies, and the income a price must produce. One equation, three unknowns, pick yours.
Cap rate
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Worked example
A new-build Taco Bell asks $2,410,000 with $140,985 of NOI: 140,985 ÷ 2,410,000 = a 5.85% cap. Flip it: if your yield floor is 6.25%, that income justifies $2,255,760 — your counter has a number behind it. Or hold price constant: at $2.41M, a 6.25% yield needs $150,625 of NOI, which the schedule of 2% annual bumps reaches early in year 4. Suddenly the negotiation is about time, not just price — that's the reverse solver earning its keep.
Using cap rates without being used by them
Cap rates only compare like to like: same credit tier, similar term, same structure. A 6.5% NN deal with a looming roof can net worse than a 6.0% absolute-net deal next door. Pair this tool with the value calculator and the tenant pages' cap ranges, then let comps — not averages — set your number.
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Methodology & FAQs
What formula does the cap rate calculator use?
Capitalization rate = net operating income ÷ purchase price × 100. It also solves the rearrangements: price = NOI ÷ cap (what should I pay for this income at my required yield?) and NOI = price × cap (what income must this price produce to hit my target?). Three views of one equation — pick the one matching the unknown in your deal.
Is the cap rate the same as my return on investment?
Only if you pay cash and nothing ever changes. Cap rate is the unlevered year-one yield: it ignores financing (leverage raises or ruins returns), rent escalations (a 2%-bumps lease outearns its going-in cap over time), and exit price. Think of it as the market's price tag for a risk profile — the start of return math, not the end. Cash-on-cash and IRR pick up where it stops.
What NOI should I plug in — actual, pro forma, or the flyer number?
In-place, verifiable NOI: current contract rent minus any landlord expenses the lease actually leaves you (management, reserves, non-reimbursed items). Flyer NOI often quietly assumes future escalations, expense caps that don't exist, or vacancy at zero forever. On absolute-net deals NOI ≈ rent, which is the structure's charm; on anything NN, subtract honestly or your cap rate is fiction.
Why did the seller's cap rate and mine come out different on the same deal?
You divided different numbers. Common culprits: they used pro-forma rent (post-bump), excluded a management fee you'll actually pay, or quoted cap on 'price after credits.' Recompute with contract rent and the real all-in price. A quarter-point of cap-rate fog on a $2M deal is $70,000 of price — the most profitable arithmetic check in real estate.
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