Cap Rate Calculator 2026 Yield

Calculate your property's capitalization rate instantly with our professional tool. Factor in income and expenses for accurate real estate yield analysis.

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Property Value / Purchase Price

Current market value or purchase price of the asset.

Annual Gross Income

Total annual income generated (rent, parking, etc.) before expenses.

Operating Expenses & Vacancy

Vacancy Rate (%)

Expected annual percentage of time the property sits empty.

Property Taxes (Annual)

Annual property tax obligations to local authorities.

Insurance (Annual)

Cost of property, liability, and hazard insurance per year.

Maintenance & Repairs (Annual)

Estimated budget for routine repairs and upkeep.

Management Fees (Annual)

Fees paid to property managers (typically 4-10% of gross income).

Other Operating Expenses

Utilities, legal fees, landscaping, or other recurring costs.

Calculated Cap Rate

8.20%

High Yield / Higher Risk (Class C/D)

Annual NOI

$82,000

Monthly Cash

$6,833

The Mathematical Core of Property Valuation

The Capitalization Rate (Cap Rate) is the most fundamental metric in income-producing real estate. It represents the unleveraged yield of a property, allowing investors to compare different assets independent of their mortgage terms. To calculate it accurately, you must first determine the Net Operating Income (NOI), which is the total annual income minus all necessary operating expenses. By dividing this NOI by the current market value or purchase price, you arrive at the Cap Rate. Our calculator automates this by breaking down expenses into professional categories, ensuring you don't miss critical line items that could skew your valuation.

Calculate your NOI first What is Cap Rate? Read Formula Guide What is a Good Cap Rate? Estimate Property Value

Professional Formula

Cap Rate = (Annual NOI / Current Market Value) × 100

Market Yield Benchmarks by Asset Class

When using this calculator, remember that Cap Rate is a 'snapshot in time' metric. It doesn't account for future rent growth, lease expirations, or market appreciation. For a truly professional analysis, you should use our Cap Rate tool in conjunction with a Discounted Cash Flow (DCF) model for longer-term holds. Furthermore, always verify the 'Pro Forma' numbers provided by brokers. They often underestimate vacancy and maintenance costs to make the Cap Rate look more attractive. Our granular expense input allows you to stress-test these assumptions by entering more realistic operational data based on your own management experience.

Property Class	Typical Profile	Avg. Value	Target Cap Rate
Class A Multifamily	Luxury, Prime Location, Low Vacancy	$5,000,000	4.5% - 5.5%
Class B Office	Stable Tenants, Mid-Market Location	$2,500,000	6.5% - 8.0%
Class C Industrial	Older Facility, Secondary Market	$1,200,000	8.5% - 10.0%
Triple Net (NNN) Retail	Single Tenant, Long-Term Lease	$3,000,000	5.0% - 6.5%

Strategic Investment Considerations

Yield Strategy

Cap Rate vs. Cash-on-Cash Return

Understanding the distinction between Cap Rate and Cash-on-Cash (CoC) return is critical for leveraged investors. While Cap Rate evaluates the property's performance as if it were purchased with 100% cash, CoC Return measures the actual return on the cash you personally invested after debt service. If your mortgage interest rate is lower than the property's Cap Rate, you are utilizing Positive Leverage, which amplifies your CoC return. Conversely, if interest rates exceed the Cap Rate, you face 'Negative Leverage,' which can erode your personal yield even if the property itself is profitable. This is why Cap Rate is used for valuation, while CoC is used for personal wealth planning.

Cap

Yield Focus

CoC

Cash Focus

How to Use

1
Aggregate Gross Operating Income
Start by totaling all income generated by the property. This includes scheduled rental income, parking fees, laundry revenue, and any other recurring income streams. For a conservative analysis, always apply a Vacancy Rate (typically 5-10%) to account for potential turnover and collection losses.
2
Subtract Operational Expenses (OpEx)
Deduct all costs required to keep the property running. This must include property taxes, insurance, repairs, utilities paid by the landlord, and management fees. Crucial SEO Tip: Do not include debt service (mortgage payments), capital expenditures (major renovations), or income taxes in this step, as Cap Rate measures the property's performance, not the owner's financing.
3
Capitalize the Income
Divide the resulting Net Operating Income (NOI) by the property's value. This final step reveals the Cap Rate. If you are a buyer, this tells you the expected return on a 'cash' purchase. If you are a seller, it helps you determine the appropriate listing price based on current market benchmarks for your property type and location.

Frequently Asked Questions

What is a 'Good' Cap Rate in the current 2026 market?

A 'good' cap rate is entirely relative to the risk profile of the asset and the current interest rate environment. In 2026, we are seeing Class A multifamily properties in core markets trading between 4.5% and 5.5%. If you are looking at Class C industrial or retail properties in secondary markets, you should expect a higher yield (8%+) to compensate for the increased risk of tenant turnover and deferred maintenance. Always compare your result against local 'comps' to ensure you aren't overpaying for the income stream.

Why does Cap Rate ignore mortgage payments and interest?

Cap Rate is designed to measure the intrinsic value and efficiency of the real estate asset itself, regardless of who owns it or how they chose to fund it. By excluding debt service, the metric allows for an 'apples-to-apples' comparison between two properties. One investor might pay all cash, while another might leverage at 80% LTV; the Cap Rate remains the same for both, as the property's ability to generate income from its physical operations is unchanged by the financing structure.

How do Interest Rates affect property Cap Rates?

There is a strong inverse correlation between interest rates and property valuations (which drives cap rates). When the cost of borrowing increases, investors typically demand a higher Cap Rate (a 'spread' over the risk-free rate) to justify the investment. This often leads to 'cap rate expansion,' where property values must decrease if the NOI remains stagnant. Understanding this relationship is vital for timing your entry or exit in the real estate market.

Is a higher Cap Rate always better for an investor?

Not necessarily. A high cap rate often signals higher perceived risk. For example, a property with a 12% cap rate might be located in a declining neighborhood, have a tenant with poor credit, or require significant structural repairs (CapEx). Conversely, a 4% cap rate property might be a 'trophy' asset in a high-demand city with a 20-year lease from a blue-chip corporation. You must weigh the higher yield against the potential for capital appreciation and income stability.

What is the difference between Cap Rate and Cash-on-Cash Return?

The Cap Rate measures the property's yield, while Cash-on-Cash (CoC) measures the investor's actual cash return on the equity deployed. CoC factors in financing (mortgage payments), making it a better metric for evaluating the impact of leverage. If the Cap Rate is higher than your mortgage interest rate, you are experiencing 'positive leverage,' which will boost your Cash-on-Cash return significantly above the property's base Cap Rate.

Should I include Capital Expenditures (CapEx) in my NOI calculation?

Standard real estate accounting distinguishes between Operating Expenses and Capital Expenditures. NOI generally only includes recurring operating expenses (repairs, taxes, etc.). Major one-time costs like a new roof or HVAC system are considered CapEx and are usually handled 'below the line' in a full cash flow analysis. However, many sophisticated investors use a 'Reserve for Replacements' (e.g., $250/unit/year) as an operating expense to account for these long-term costs in their Cap Rate analysis.

Related Tools

NOI Calculator

Accurately calculate Net Operating Income (NOI) by subtracting all operating expenses from revenue. Essential for professional real estate property valuation.

Property Value Calculator

Determine fair market value of any investment property using the income capitalization approach. See how NOI and Cap Rate impact your property valuation.

Cap Rate Calculator 2026 Yield

The Mathematical Core of Property Valuation

Market Yield Benchmarks by Asset Class

Strategic Investment Considerations

Cap Rate vs. Cash-on-Cash Return

How to Use

Aggregate Gross Operating Income

Subtract Operational Expenses (OpEx)

Capitalize the Income

Frequently Asked Questions

Related Tools

NOI Calculator

Property Value Calculator

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Guides

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