Cap Rate Calculator for Commercial Real Estate (with Cash-on-Cash)

Compute cap rate and cash-on-cash return from NOI and purchase price.

Cap rate and cash-on-cash return answer two different questions about the same deal, and conflating them is one of the more common mistakes in a quick back-of-envelope CRE analysis. This calculator keeps them as two separate outputs — one unlevered, one levered — rather than blending them into a single misleading yield figure, following the same formulas the Appraisal Institute and CCIM Institute publish for commercial underwriting.

How to calculate cap rate

Total the property's gross income for a year: rents plus parking, laundry, storage or other recurring income.
Subtract vacancy and credit loss, then subtract operating expenses such as property taxes, insurance, management and repairs; what remains is net operating income (NOI). The calculator takes this NOI figure directly rather than itemizing it.
Enter the NOI and the purchase price. Cap rate is NOI ÷ price × 100, so the calculator's starting values of $60,000 NOI on a $1,000,000 price give a 6.00% cap rate.
To see the levered return as well, tick Enable financed-purchase mode and fill in the down payment, interest rate, amortization period and loan term.

What counts in NOI (and what doesn't)

Include: property taxes, building insurance, property management fees, routine repairs and maintenance, utilities the owner pays, landscaping, and a reserve for vacancy and unpaid rent.
Exclude: mortgage principal and interest (debt service), because cap rate is measured before financing.
Exclude: capital expenditures such as a new roof or HVAC replacement, which are usually budgeted separately from operating expenses.
Exclude: depreciation and income taxes, which depend on the owner rather than the property.
Use a full year of real figures where you can; a seller's pro-forma NOI often assumes full occupancy and trimmed expenses.

Cap rate ignores your financing on purpose

Cap rate is net operating income divided by purchase price, full stop — it deliberately says nothing about how you're paying for the property. That's exactly what makes it useful for comparing two buildings against each other regardless of whether one buyer is paying all cash and the other is highly leveraged: it's a property-level yield, not a deal-structure yield.

A negative NOI or a purchase price of zero or less is rejected outright with a specific error rather than silently returning a negative or infinite percentage — a cap rate has no honest meaning once either of those goes wrong.

Using cap rate to estimate property value

Rearranging the formula gives value ≈ NOI ÷ market cap rate. If comparable buildings in your submarket trade around a 6% cap rate, a property earning $60,000 of NOI is worth roughly $1,000,000; at a 5% cap rate the same income supports about $1,200,000, and at 7% only about $857,000.

That sensitivity is the point to take away: moving the market cap rate by one percentage point, from 6% to 7%, knocks roughly 14% off the implied value without any change in the building's income. It is also why raising NOI by cutting expenses or filling vacancies is valued so highly by commercial investors.

Cash-on-cash brings the loan back in

Cash-on-cash return is (NOI minus annual debt service) divided by the actual cash you put in — your down payment. Annual debt service comes from amortizing the loan amount at your entered rate over your entered amortization period, using the exact same amortized-payment formula as the site's mortgage simulator, then multiplying that monthly payment by twelve.

Loan term and amortization period are kept as two separate fields on purpose. A common CRE structure amortizes the payment schedule over 25 years to keep payments low but sets the note's actual maturity — and balloon payment — at year 10. The payment only depends on the amortization period; the loan term is recorded for your records but does not change the payment math.

Cap rates and interest rates

Investors compare a property's cap rate with what they could earn elsewhere and with what borrowing costs, so when interest rates rise, buyers tend to demand higher cap rates and prices soften. The link is loose and slow rather than one-for-one, and it varies by property type and market.

The financed mode shows why the spread matters. With the default $250,000 down and $750,000 borrowed at 6.5% over a 25-year amortization, annual debt service is about $60,769 — slightly more than the $60,000 NOI — so cash-on-cash comes out at about −0.31% even though the cap rate is a respectable 6%. The loan's annual payment is about 8.1% of the amount borrowed, above the 6% the property yields, which is what investors call negative leverage: borrowing lowers your return instead of raising it.

What makes the financed calculation reject your inputs

A down payment that's zero, negative, or larger than the purchase price.
An interest rate entered as negative.
An amortization period or loan term of zero or less.
A negative net operating income, on either the cap-rate or cash-on-cash side.

Where this stops being enough analysis

This tool has no idea what a comparable cap rate looks like in your specific submarket, asset class, or interest-rate environment — a 6% cap rate can be aggressive or conservative depending entirely on context this calculator doesn't have. It also doesn't model closing costs, capital reserves, lease rollover risk, or a refinance at the loan's maturity.

Underwriting a real acquisition — sizing debt, stress-testing vacancy, and confirming NOI against trailing operating statements — is work for a commercial mortgage broker, a CRE appraiser, or your own financial advisor, not a browser calculator.

Questions people ask about Commercial Real Estate (CRE) Cap Rate Calculator

Does cap rate include the mortgage payment?: No. Cap rate uses NOI, which is calculated before any debt service, so two buyers of the same building get the same cap rate however they finance it. The loan only enters this calculator's second figure, cash-on-cash return, when you turn on financed-purchase mode.
What does a 7.5 cap rate mean?: It means the property's NOI equals 7.5% of its price — for example $75,000 a year on a $1,000,000 building. Put another way, you are paying about 13.3 times one year's NOI, and ignoring growth, the income would take roughly 13 years to repay an all-cash purchase. Commercial real estate guides commonly describe roughly 4% to 12% as the usual spread of cap rates, with lower figures for stable, prime assets and higher ones for riskier properties.
Do cap rates rise with interest rates?: They tend to move in the same direction over time, because higher borrowing costs and higher yields on safer investments push buyers to demand more income per dollar of price. The relationship is not one-for-one or immediate, so this calculator makes no rate forecast; enter the cap rate your own market data supports.
Why do I get two different percentages instead of one deal return?: Cap rate and cash-on-cash measure different things: cap rate is the property's unlevered yield on the full purchase price, cash-on-cash is your levered yield on just the equity you put in. A highly leveraged deal can show a strong cash-on-cash return with an ordinary cap rate, and that gap is exactly what the two-number format is meant to show you.
Does a longer loan term lower my monthly debt service here?: No — the payment is driven entirely by the amortization period you enter, not the loan term. Loan term only records when the note actually matures (and a balloon payment would be due), which is a common structure where the amortization schedule runs longer than the loan's real maturity.
What happens if I enter a down payment larger than the price?: The calculator rejects it with an explicit error rather than computing a cash-on-cash return off a negative implied loan amount. Down payment has to be a positive number no greater than the purchase price for either output to be considered valid.
Is a 7% cap rate here a good deal?: The calculator has no way to know — a good cap rate depends on your asset class, submarket, and the current rate environment, none of which this tool has data on. Treat the output as one input into an underwriting process, not a verdict, and run it past a CRE broker or appraiser familiar with your specific market.

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Content reviewed 2026-09-27.