What is a good cap rate for commercial real estate?

Varies significantly by property type and market. Multifamily in major metros: 4-5%. Retail: 5-7%. Industrial: 5-7%. Office: 5-8%. Class B suburban retail: 7-9%. Higher cap rate = higher return but higher risk.

How does cap rate relate to property value?

Value = NOI / Cap Rate. If NOI is $100,000 and the market cap rate is 5%, the property is worth $2,000,000. A rise in cap rate (5% to 6%) on the same NOI drops value to $1,667,000.

What is the difference between cap rate and cash-on-cash return?

Cap rate ignores financing and measures property-level return. Cash-on-cash measures the leveraged return on equity invested: annual pre-tax cash flow / total cash invested. A cap rate of 5% with 70% LTV might yield 8-10% cash-on-cash return.

Commercial Real Estate Cap Rate Calculator

Calculate capitalization rate: Cap Rate = Net Operating Income / Property Value. Used to value income-producing commercial real estate and compare investment properties.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate capitalization rate: Cap Rate = Net Operating Income / Property Value. Used to value income-producing commercial real estate and compare investment properties. Use the cap rate result to inform your calculation.

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Frequently Asked Questions

What is a good cap rate for commercial real estate?

How does cap rate relate to property value?

What is the difference between cap rate and cash-on-cash return?