Free calculator
Cap rate calculator and property value estimator
A capitalization rate divides a property’s net operating income by its price or value, giving the unlevered yield at that price. The same equation runs three ways, which makes this cap rate calculator a commercial property value estimator too: the cap rate a price implies, the value an income supports at a target rate, and the income a price needs to reach that rate.
What is a sample commercial property worth, and what cap rate does its price imply?
| Input | Value |
|---|---|
| Net operating income | $215,000 |
| Price or value | $3,000,000 |
| Target cap rate | 6.50% |
Cap rate at this price7.17%
- Illustrative property: a building producing $215,000 of net operating income, offered at $3,000,000, in a submarket where comparable sales trade near a 6.50% cap rate. Sample figures, not a market survey.
- Cap rate: $215,000 ÷ $3,000,000 = 7.17%.
- Value the same income supports at a 6.50% cap rate: $215,000 ÷ 0.065 = $3,307,692.
- Income a $3,000,000 price would need at 6.50%: $3,000,000 × 0.065 = $195,000.
At $3,000,000 the income yields 7.17%. If comparable sales trade at 6.50%, the same income supports a price about $307,000 higher, the gap a seller will point to and an appraiser will test.
How is a cap rate calculated?
Cap rate = NOI ÷ Property value Value = NOI ÷ Cap rate NOI = Value × Cap rate
- 20,000+loan programs screened
- 5–8matches on a typical deal
- under an hourto the median first offer
- Zero upfrontto submit and compare offers
How do you read the result?
A higher cap rate means a lower price for the same income, and the market usually prices that yield in for a reason, such as an older asset or a weaker tenant. A lower rate means buyers are paying for expected growth or safety.
For a loan, the cap rate sets the value the leverage cap is applied to. If the appraiser uses a higher rate than you paid, the value falls and the loan shrinks, so learn the appraiser’s rate and income before the term sheet. The spread between the cap rate and the loan constant also decides whether leverage raises your cash return or dilutes it.
How do you estimate a commercial property’s value from its cap rate?
Divide the net operating income by the cap rate the market applies to similar properties. That is direct capitalization, the income approach an appraiser runs on a stabilized building: enter the income, set the target cap rate to what comparable sales traded at, and the value at the target is the price that income supports.
The estimate is only as good as the two inputs. Use the income a buyer or lender would underwrite, net of vacancy, management and reserves, and a cap rate taken from sales of similar age, tenancy and location. A small change in the cap rate moves the value a lot, so run the low and high ends of the comparable range before you quote a number to a buyer, a seller or a lender.
Frequently asked questions
How do I calculate the value of a commercial property?
Divide the property’s net operating income by the market cap rate for comparable buildings. Enter both here and read the value at the target cap rate. Appraisers also weigh comparable sales and replacement cost, so treat this as the income-approach estimate, the one a lender’s appraisal usually leans on for an income property.
Which NOI goes into a cap rate?
Trailing twelve months for a stabilized property, a projected stabilized year for one in lease-up. Buyers quote going-in rates on current income and lenders underwrite normalized income, so the two rates can differ for the same building.
Is a higher cap rate better?
For a buyer it means more income per dollar paid. For a seller or a refinancing owner, a lower rate means a higher value and a larger loan.
Does the cap rate include the mortgage?
No. It is unlevered, income before debt service over value, which lets buyers compare properties however each is financed; cash-on-cash return is the levered equivalent.
What cap rate should I use to value my property?
The rate comparable properties recently sold at in your submarket, adjusted for age, tenancy and condition. An appraiser runs the same exercise, and a broker’s opinion of value is a useful early read.
What does YieldStack do?
YieldStack is a commercial mortgage brokerage. Every term sheet comes from a lender in the network and is subject to that lender's underwriting.
Does it cost anything to see terms?
No. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
Is financing guaranteed?
No. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Where does YieldStack operate?
Nationwide. YieldStack arranges commercial real estate financing nationwide. Every deal is business-purpose commercial financing, and the broker fee is paid only at closing.
Bring the number to lenders.Compare the terms they send.
YieldStack is a commercial mortgage brokerage.