Calculate capitalization rate, estimate property value from NOI, or find the NOI needed to hit your target cap rate. The essential CRE investment metric.
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The capitalization rate is the most fundamental metric in commercial real estate investing.
Cap rate represents the unlevered return on a property — the annual yield you'd earn if you paid all cash with no mortgage. It lets you compare properties regardless of financing structure, size, or location on an apples-to-apples basis.
Higher cap rates (7–10%+) mean higher returns but usually higher risk — secondary markets, older buildings, shorter leases. Lower cap rates (4–6%) indicate prime locations, long-term tenants, and institutional-quality assets with less upside potential.
Cap rate ignores financing. Cash-on-cash return measures your actual return on invested equity after debt service. A 6% cap rate property financed at 75% LTV with a 6.5% mortgage might yield 8–12% cash-on-cash due to leverage amplification.
If market cap rates for similar properties are 7% and a seller prices at a 5.5% cap, the property may be overpriced. Conversely, buying at an above-market cap rate can indicate a value opportunity or hidden risk requiring due diligence.
Current market cap rate ranges across major CRE asset classes.
| Property Type | Cap Rate Range | Risk Profile | Typical Investors |
|---|---|---|---|
| Multifamily (Class A) | 4.5% – 5.5% | Low | Institutional, REIT, HNWI |
| Multifamily (Class B/C) | 5.5% – 7.5% | Low-Medium | Value-add investors |
| Industrial / Warehouse | 5.0% – 7.0% | Low-Medium | Institutional, logistics |
| Retail (NNN Lease) | 5.5% – 7.0% | Medium | Passive investors |
| Office (Suburban) | 6.5% – 8.5% | Medium-High | Value-add, regional investors |
| Medical Office | 5.5% – 7.0% | Low-Medium | Specialized CRE investors |
| Hotel / Hospitality | 7.0% – 10%+ | High | Experienced operators |
| Self-Storage | 5.5% – 8.0% | Medium | Operators, syndicators |
Every calculator we offer, in one place — run the next number your lender will ask about.
Common questions about cap rates and CRE investment analysis.
There is no universal "good" cap rate — it depends on property type, location, and your investment goals. Multifamily in prime markets may trade at 4.5–5.5%. Office in secondary markets at 7–9%. Generally, higher cap rates mean higher returns but more risk.
It depends on your strategy. Higher cap rates (7%+) offer more immediate cash flow and are better for income-focused investors. Lower cap rates (under 6%) are typical for premium assets where investors prioritize appreciation and stability over current yield.
No. Cap rate is an unlevered metric — it assumes an all-cash purchase with no debt. This makes it useful for comparing properties regardless of financing. To see your actual return after debt, use the Cash-on-Cash Return calculator instead.
If a property generates $100K NOI and you want a 7% return, your max price is $100K ÷ 0.07 = $1,428,571. If the seller wants $1.6M, that is a 6.25% cap — you would need to negotiate down or determine if the lower yield is acceptable.
Cap rates reflect risk. Multifamily has low cap rates because people always need housing (stable demand). Hotels have high cap rates because revenue fluctuates with travel trends. Industrial is trending lower as e-commerce drives warehouse demand.
Absolutely. Our advisors evaluate your deal's cap rate, DSCR, and overall investment profile to match you with the right CRE lender. We help ensure your financing structure supports your return targets — all at no upfront cost.
Our advisors help you evaluate CRE investments and match you with the right lender — no guesswork, no upfront fees.
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