Skip the math: use our free interactive calculator, with live results, embeddable, no signup.
NOI divided by price equals cap rate. The calculator below does that arithmetic, and the sections after it cover the formula in all three directions, worked examples, and what goes into the NOI box.
I spent 10 years on the buy side, the last five as Director of Research, closing more than $2B in CRE transactions. The calculator at the top of this page is exactly the math we used on every deal. But the NOI we used was rarely the NOI on page two of the offering memorandum.
That difference, broker NOI versus the NOI a real buyer underwrites, is where deals get won or lost. So use the calculator, but read the rest of this before you treat the output as a number you can act on.
Cap Rate Calculator
Calculate Cap Rate
Enter your Net Operating Income (NOI) and the property price or value. Cap rate updates automatically.
Annual revenue minus operating expenses, before debt service and capex.
<div>
<label for="cap-rate-price" class="mb-2 block text-sm font-medium text-gray-700">Property Price or Value</label>
<div class="relative">
<span class="absolute left-3 top-1/2 -translate-y-1/2 text-gray-500">$</span>
<input
id="cap-rate-price"
type="text"
inputmode="decimal"
placeholder="10,000,000"
class="w-full rounded-md border border-gray-300 bg-white py-2 pl-7 pr-3 text-base text-gray-900 focus:border-blue-600 focus:outline-none focus:ring-1 focus:ring-blue-600"
/>
</div>
<p class="mt-1 text-xs text-gray-500">Purchase price, appraised value, or whole-dollar market value.</p>
</div>Enter NOI and price above to calculate.
At 6.5% cap: —
At 8.0% cap: —
Cap rate formula: solving for rate, value and NOI
Cap Rate = NOI / Price. Both figures are annual. NOI is revenue minus operating expenses, before debt service, capital expenditures, depreciation and income taxes. The price is either the purchase price or an appraised value. Example: $1,000,000 of NOI on a $15,000,000 price is $1,000,000 / $15,000,000 = 6.67%.
The same equation runs in three directions.
Solving for the cap rate
A 220,000 SF distribution warehouse is for sale at $42,500,000. The OM shows:
| Line item | Amount |
|---|---|
| Base rental income | $2,420,000 |
| Reimbursements (NNN) | $660,000 |
| Total revenue | $3,080,000 |
| Vacancy and credit loss (2%) | ($61,600) |
| Effective gross income | $3,018,400 |
| Operating expenses | ($720,000) |
| Net operating income | $2,298,400 |
Cap rate = $2,298,400 / $42,500,000 = 5.41%. Whether that is the right price depends on tenant credit, rent versus market and remaining lease term, none of which the formula sees.
Solving for value
Value = NOI / Cap Rate. A 240-unit multifamily property has normalized NOI built like this:
| Line item | Amount |
|---|---|
| Gross potential rent | $5,184,000 |
| Loss to lease | ($103,680) |
| Vacancy (5% of GPR) | ($259,200) |
| Concessions and bad debt | ($129,600) |
| Other income (RUBS, fees) | $480,000 |
| Effective gross income | $5,171,520 |
| Operating expenses | ($2,068,608) |
| Replacement reserves ($300/unit) | ($72,000) |
| Net operating income | $3,030,912 |
If the appraiser’s market cap rate is 5.40%, value = $3,030,912 / 0.054 = $56,128,000. That is the income approach in direct capitalization form, and lenders use it to size loans. If the comparable cap rates are stale by 50 basis points, the value is off by roughly 9 to 10 percent at a rate near 5.4%.
Solving for implied NOI
NOI = Price x Cap Rate. A broker pitches a 165,000 SF suburban office building at $32,000,000 and quotes a 6.5% cap rate without an NOI breakdown. Implied NOI = $32,000,000 x 0.065 = $2,080,000, or $2,080,000 / 165,000 = $12.61 per SF. Compare that figure with what the building’s actual rents, occupancy and expense load can produce. If it takes every lease at market and flat expenses to get there, the quoted cap rate is the broker’s assumption, not a fact.
Cap rate versus other valuation methods
Direct capitalization and discounted cash flow are both methods within the income approach; the three classic appraisal approaches are income, sales comparison and cost. Direct cap capitalizes one year of NOI at a market rate, so growth and risk sit implicitly inside the rate. A DCF discounts multi-year cash flows and sale proceeds, handling growth, capital and exit explicitly, which is why it is more precise and easier to manipulate. In practice, a thorough valuation cross-checks one against the other. See commercial property valuation for how the approaches fit together.
When to use a cap rate calculator
A cap rate calculator is most useful in three moments of a deal:
- Initial screening. A broker sends an offering memorandum. Within 30 seconds you should know whether the asking price is in the conversation or wildly outside the conversation for the asset class and market. The cap rate calculator gives you that answer.
- Sensitivity testing. You think NOI is overstated by 8-12% because of stale market rents or under-reserved capital. Run the calculator at your adjusted NOI and see where the implied cap rate lands at the seller’s asking price. If your “real” cap rate is 75 basis points wider than the quoted number, that’s your negotiating position.
- Implied value calculations. You know your target unleveraged yield (your hurdle rate, your fund’s IRR target backed into a cap, or the market clearing cap rate from recent comps). The calculator runs the math in the other direction: at this NOI and this target cap, what’s the most I can pay?
What the calculator does not do is tell you whether the NOI is right. That part is judgment.
What “NOI” really means from a buyer’s perspective
Net operating income is annual revenue minus annual operating expenses, excluding debt service, depreciation, capital expenditures, and income taxes. The textbook definition is uncontroversial. The application is where it falls apart.
There are at least four different NOIs floating around any deal:
- Trailing 12-month NOI (T-12). What the property actually produced over the last twelve months. This is the cleanest number: it’s measured, not projected. It’s also the one that contains all the one-time items, vacancy gaps, and operational distortions that the seller would prefer you ignore.
- Forward 12-month NOI. The next twelve months as projected. Lower vacancy than T-12 if the asset is leasing up, higher vacancy if a major tenant is leaving. This is what most buyers underwrite to.
- Broker NOI. A blended number that often uses today’s rent roll annualized, broker-friendly assumptions about expense growth, and a vacancy factor that may or may not match the asset’s actual lease structure. Treat this as a starting point, not an input.
- Stabilized NOI. What the property produces once the value-add plan is executed (leasing complete, rents at market, expenses optimized). Useful for exit-cap and yield-on-cost analysis. Never use stabilized NOI to compute a going-in cap rate.
The most expensive mistake junior analysts make is mixing these. They take a stabilized NOI from the OM, divide it by the trailing 12-month asking price, and report a cap rate to their IC. The number is meaningless, but it’s the number that ends up in the model.
Use the same NOI definition across every comp, every deal, every screen. Normalize before you compute.
Common mistakes when using a cap rate calculator
Most cap rate errors come from the inputs, and they repeat.
1. Using as-quoted NOI without normalization
Most offering memoranda annualize the most recent quarter, exclude one-time expenses, and pencil in vacancy assumptions that look more like a target than a forecast. Before you run a cap rate calculation, normalize:
- Vacancy and credit loss at a market level appropriate for the asset, not the seller’s optimistic number.
- Management fees at a market level for the asset type, even if the seller is self-managing at zero cost.
- Reserves for replacement. The seller’s NOI often excludes them. A real buyer includes a reserve sized to the property’s age and condition, per unit for multifamily and per SF for commercial.
- Repairs versus capital. Sellers sometimes classify capital projects as operating repairs to inflate NOI. Pull the general ledger detail and reclassify anything that is capital in nature.
- Real estate taxes adjusted for likely reassessment at your purchase price, not the seller’s frozen basis.
That last item alone can move NOI materially on assets where the seller has been protected by a long-held assessment. Whether a sale triggers reassessment depends on the state, so check the local rule.
2. Mixing trailing and forward in the same calculation
You see this constantly: trailing rent roll, forward expense assumptions. Or forward income (today’s signed leases extrapolated) against trailing expenses (last year’s actuals that include a snowstorm and a one-time legal fee). Pick a period. Stick with it. The cap rate calculator can’t tell you what NOI you typed in.
3. Comparing against stale comparable sales
A cap rate in isolation tells you nothing. It only has meaning relative to where comparable assets are trading. The problem: “comparable” requires same asset class, same submarket, same vintage, same tenant profile, and same date, and CRE comp data is often three to six months stale by the time it shows up in CoStar or Reonomy.
The discipline: when you compare your computed cap rate to “the market,” know exactly which transactions you’re using as the reference set. If the most recent legitimate comp is from late 2025 and cap rates have moved 50 basis points since then, your benchmark is wrong by that much.
4. Ignoring capital that should reduce NOI
Cap rate is unleveraged but it’s also pre-capital. If the asset needs $40/SF of capital in the first three years to maintain its income stream, the cap rate flatters the deal. A 6.5% cap on a Class B office building that needs $5M of capital in Years 1-2 is not actually a 6.5% deal. The fix is straightforward: separately model the capital and look at yield on cost, or subtract Year 1 capital from Year 1 NOI to get an effective cap rate. Both work. Neither is what the broker is quoting.
5. Treating the cap rate as the answer
A cap rate is a screening tool and a pricing benchmark. It is not a return. It is not a recommendation. It is not a substitute for understanding the income stream: the leases, the tenants, the rent roll, the expense load, and the capital required to maintain or grow what you’re buying.
A cap rate is only as reliable as the NOI behind it, and the NOI is built from the leases, the rent roll and the expense load.
Where this fits in real diligence
Checking each lease against the rent roll, reconciling reimbursements, flagging unfunded TI obligations and normalizing operating expenses is repetitive analyst work, and it is where the NOI gets decided. Moraine turns an OM, rent roll and operating statement into a source-linked DCF model, so each number in the model traces back to the page it came from. That does not replace judgment about whether the NOI is right; it removes some of the manual reconciliation ahead of it.