Cap Rate Calculator

The cap rate formula has three variables. If you know any two, you can solve for the third.

Net Operating Income (NOI) is the property's annual gross income minus all operating expenses — property taxes, insurance, management fees, maintenance, and utilities. NOI does not include mortgage payments, depreciation, or capital expenditures.

Property Value is either the current market value (for existing holdings) or the asking price / purchase price (for acquisitions). In deal analysis, investors typically use the asking price to determine whether the implied cap rate meets their target return.

Suppose you're evaluating a 40-pad RV park listed at $1,200,000. The seller provides the following financials:

An 11.7% cap rate on an RV park is above the typical 8% to 12% range, suggesting either a value-add opportunity with upside or a property in a secondary market where buyers demand higher returns for the added risk.

This calculator supports three solve modes — toggle between them using the buttons at the top of the calculator.

• Solve for Cap Rate — the most common mode. Enter your NOI and the asking price to instantly see the implied cap rate. Use this when evaluating a deal to determine if the return meets your target.
• Solve for NOI — useful when a seller or broker quotes a cap rate and price but doesn't disclose income. Enter the cap rate and property value to back into what the NOI must be.
• Solve for Property Value — the reverse valuation mode. Enter your NOI and a target cap rate to determine what you should pay. This is the income approach to valuation that appraisers and institutional buyers use to price commercial properties.

Results calculate instantly as you type — no button click required.

There is no single “good” cap rate — the right number depends on property type, location, condition, and your risk tolerance. In general, cap rates for commercial real estate range from 4% to 13%.

Lower cap rates (4% – 7%) are typical for stabilized, institutional-grade properties in primary markets — Class A apartments, downtown office buildings, or anchored retail centers. These properties trade at a premium because they carry less risk: strong tenant bases, professional management, and predictable cash flow.

Higher cap rates (8% – 13%) are common for niche or management-intensive asset classes — RV parks, mobile home parks, campgrounds, self-storage, and rural commercial properties. These require more hands-on management but reward operators with higher cash yields.

As a rule of thumb: the more operational effort a property requires, the higher the cap rate investors demand. An RV park with seasonal occupancy and utility management justifies a 10% cap rate, while a triple-net leased drugstore with zero landlord responsibilities might trade at 5%.

The table below shows typical cap rate ranges for common commercial real estate property types. These are national averages — individual markets, property condition, and deal-specific factors will shift these ranges.

Cap rates and interest rates are closely correlated. When interest rates rise, cap rates tend to rise with them — and property values fall as a result. When rates drop, cap rates compress and values increase.

The reason is competition for capital. Real estate competes with bonds, treasuries, and other yield-bearing investments. If a 10-year Treasury yields 5%, an investor won't accept a 5% cap rate on an RV park that carries significantly more risk. They'll demand a risk premium — perhaps 400 to 600 basis points above the risk-free rate — pushing the required cap rate to 9% or higher.

This is why the same property can be worth $1.5M in a low-rate environment and $1.1M when rates spike. The NOI didn't change — the cap rate expanded because buyers demand more return to compensate for higher borrowing costs.

The spread between cap rates and interest rates is a key signal. When spreads are thin (cap rates barely above borrowing rates), the market is considered “frothy.” When spreads are wide, it can signal opportunity — especially for cash buyers who aren't affected by borrowing costs.

Cap rate is one of several metrics investors use to evaluate commercial real estate. Each measures something different — here's how they compare:

Cap rate is powerful but not perfect. Understanding its limitations helps you avoid common mistakes in deal evaluation:

• Ignores financing. Cap rate assumes an all-cash purchase. Two deals with identical cap rates can have very different returns depending on loan terms. Always pair cap rate with cash-on-cash return analysis.
• Backward-looking. Cap rate is based on trailing NOI or pro-forma projections — it doesn't predict future performance. A park with declining occupancy may show a high trailing cap rate that won't hold.
• Doesn't capture capital expenditures. NOI excludes CapEx (roof replacements, road resurfacing, utility upgrades). A property needing $200K in deferred maintenance may look like a great cap rate deal until you factor in the true cost.
• Varies by market and time. A 9% cap rate in rural Texas means something very different from 9% in coastal Florida. Always compare cap rates within the same market and property type.
• Not useful for vacant or development properties. Cap rate requires income. It cannot be applied to raw land, ground-up development, or properties with zero occupancy.

Cap rate is best used as a starting point for analysis — not the final word. Combine it with cash flow modeling, physical inspection, and market research before making any investment decision.