Cap Rate Calculator
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🏠 Calculate Your Cap Rate
What Is Cap Rate?
Capitalization rate (cap rate) is the ratio of a property's net operating income (NOI) to its market value. It's the most commonly used metric in real estate investing to compare properties and evaluate potential returns.
📐 Cap Rate = Net Operating Income (NOI) ÷ Property Value × 100
A higher cap rate means higher potential returns but typically higher risk. A lower cap rate means lower returns but often in more stable, appreciating markets.
What's a Good Cap Rate? (2026 Market Data)
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| Market Type | Typical Cap Rate | Example Cities |
|---|---|---|
| Class A / Gateway | 3.5-5.0% | NYC, SF, LA, Boston |
| Class A / Secondary | 4.5-6.0% | Austin, Nashville, Denver, Raleigh |
| Class B / Secondary | 5.5-7.5% | Tampa, Phoenix, Charlotte, Columbus |
| Class C / Tertiary | 7.0-10.0% | Cleveland, Memphis, Birmingham, Tulsa |
| Rural / Small Market | 8.0-12.0% | Small towns, rural areas |
Cap Rate Benchmarks by Property Type
| Property Type | 2026 Avg Cap Rate | Trend |
|---|---|---|
| Single-Family Rental | 5.0-7.5% | ↗️ Rising slightly |
| Small Multifamily (2-4 units) | 5.5-8.0% | ↗️ Rising |
| Apartment Complex (5+) | 4.5-6.5% | → Stable |
| Commercial/Retail | 5.5-8.0% | ↗️ Rising |
| Industrial/Warehouse | 5.0-7.0% | ↘️ Compressing |
| Short-Term Rental/Airbnb | 6.0-10.0% | ↗️ Rising (regulations) |
Cap Rate vs. Other Metrics
Cap rate is useful but has limitations. Here's when to use it — and when not to:
- Use cap rate for: Comparing similar properties in the same market, quick property screening, estimating market value from NOI
- Don't rely on cap rate alone for: Properties with significant value-add potential, short-term rentals with variable income, properties you plan to heavily finance
- Also calculate: Cash-on-cash return (accounts for financing), DSCR (debt service coverage), and total ROI (includes appreciation)
Common Cap Rate Mistakes
- Using gross income instead of NOI: Always subtract operating expenses. A property with $30K gross rent and $12K expenses has an NOI of $18K, not $30K.
- Forgetting vacancy: No property is 100% occupied 100% of the time. Use 5-8% vacancy allowance.
- Ignoring CapEx reserves: Roofs, HVAC, appliances need replacement. Budget 5-10% of rent for capital expenditure reserves.
- Comparing different markets: A 4% cap rate in San Francisco isn't "worse" than an 8% in Memphis. The markets have different risk profiles and appreciation potential.
- Not accounting for management: If you self-manage, include an 8-10% management fee anyway. Your time has value, and you might hire a PM later.
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