Cap Rate to Value Calculator

The formula

Value = net operating income ÷ cap rate
Cap rate = net operating income ÷ price

NOI is rent collected minus operating expenses — taxes, insurance, maintenance, management, utilities the owner pays — but before mortgage payments, capital expenditure and income tax. That definition matters: the cap rate measures the property, not the financing.

Worked examples

$60,000 at 6% → $1,000,000
$60,000 at 5% → $1,200,000
$60,000 at 8% → $750,000
$60,000 at 10% → $600,000
$90,000 at 6% → $1,500,000
$30,000 at 6% → $500,000

Why cap rates differ

A cap rate is a market convention, not a law of physics. Low cap rates — 4% to 6% — are typical of prime locations with strong tenants and low expected growth in risk, and they mean buyers accept a smaller annual return in exchange for safety and appreciation. High cap rates, 9% to 12%, appear where vacancy risk, deferred maintenance or a weak market demands compensation.

Interest rates move cap rates with a lag. When borrowing costs rise, buyers who need leverage can pay less for the same income, and cap rates expand. That is why a property can lose value without any change in its rent roll: the discount rate applied to those rents has moved.

The traps in using a single number

Cap rate ignores capital expenditure. A building with a roof due next year can look like an 8% deal and behave like a 5% one once the replacement is paid for. It also ignores financing entirely, so a leveraged buyer earning 15% on equity from an 8% cap-rate property is not evidence that the cap rate is wrong — the two measure different things.

Small properties price differently from large ones, and a single-tenant building is a different risk from a twenty-unit block. Use cap rates from genuinely comparable sales in the same market and asset class, and sanity-check with a discounted cash flow if the income is not stable. A back-of-envelope division is a screening tool, not an appraisal.

Frequently Asked Questions