Free Tool
Cap rate calculator for apartment buildings.
A cap rate is annual net operating income divided by the property's value. Enter your NOI and value to see the cap rate, then add the extra NOI you are planning for, from higher occupancy, fewer concessions or better renewals, to see what it is worth to the asset at that same cap rate.
Cap Rate
5.00%
$1,000,000 NOI on a $20,000,000 value
- Value of the Added NOI
- $2,000,000
- Value With the Added NOI
- $22,000,000
Show the math
- Cap rate = annual NOI divided by value.
- Value of added income = added annual NOI divided by the cap rate.
- At a 5% cap rate, every $1 of added annual NOI is worth $20 of value.
Cap rate questions, answered.
- How do you calculate a cap rate?
- Divide annual net operating income by the property value or purchase price. A building with $1,000,000 of NOI valued at $20,000,000 has a 5% cap rate.
- What counts as NOI?
- Rental and other property income minus operating expenses such as payroll, repairs, utilities, insurance, taxes and management. Debt service, capital expenditures and depreciation are not operating expenses, so they are left out.
- Why does added NOI matter so much to value?
- Because value is NOI divided by the cap rate. At a 5% cap rate, every $1 of added annual NOI adds $20 of value, which is why occupancy, concessions and renewals show up in what a property is worth.
- Is a higher cap rate better?
- It depends on which side you are on. A higher cap rate means more income for each dollar of value, which buyers like and usually reflects more risk. For the same NOI, a lower cap rate means a higher value.
- Does the calculator use market cap rates?
- No. It calculates the cap rate from the NOI and value you enter. Market cap rates vary by city, asset class and time; use a current, dated source for your market when you underwrite.