Free tool · no sign-up
Cap rate calculator
Work out a capitalization rate from net operating income and price, or the value an NOI supports at a given cap rate. Amounts in CAD; nothing you type leaves your browser.
Results
- Cap rate on price
- 5.50%
- Value at 6.00%
- $6,875,000
- Difference vs price
- -8.3%
| Cap rate | Value |
|---|---|
| 5.00% | $8,250,000 |
| 5.50% | $7,500,000 |
| 6.00% | $6,875,000 |
| 6.50% | $6,346,154 |
| 7.00% | $5,892,857 |
All amounts in Canadian dollars. Calculated in your browser; nothing is sent or saved.
How it’s calculated
- Cap rate
Cap rate = NOI ÷ purchase price × 100 - Value
Value = NOI ÷ (cap rate ÷ 100) - NOI
NOI = price × (cap rate ÷ 100)
Worked example (illustrative numbers)
- A multi-tenant industrial building produces a stabilized NOI of $412,500 a year.
- The asking price is $7,500,000.
- Cap rate = 412,500 ÷ 7,500,000 × 100 = 5.50%.
- If a buyer underwrites the same NOI at a 6.00% cap rate, value = 412,500 ÷ 0.06 = $6,875,000, about 8% below the asking price.
These figures are for illustration only and are not a market cap rate for any property type or city.
What a cap rate tells you, and what it doesn't
The capitalization rate is the first-year unlevered yield on a property: the net operating income it produces divided by what you pay for it. Brokers use it to compare listings of different sizes, to sanity-check an asking price against recent sales, and to show buyers how sensitive value is to small changes in yield.
A cap rate ignores financing, so it says nothing about cash-on-cash return or debt service coverage. It is also a single-year snapshot: it doesn't capture rent steps, lease expiries, vacancy risk, capital items coming due, or the remaining term on the leases. Two buildings at the same cap rate can be very different investments, which is why an offering memorandum pairs the headline cap rate with the rent roll, lease expiry schedule and tenant profiles.
Use the right NOI
The cap rate is only as good as the NOI behind it. State whether you are using in-place NOI (today's rents and today's expenses) or pro forma NOI (after lease-up, rent resets or expense savings). Buyers will re-cut a pro forma number, so label it clearly and show the assumptions.
NOI is income after vacancy and operating expenses but before mortgage payments, income taxes, depreciation and capital expenditures. If the seller's statement mixes in a roof replacement or loan interest, take it out before you calculate. The NOI calculator linked below walks through the lines.
Presenting cap rates in a listing
In an offering memorandum, show the cap rate next to the NOI and the price it is calculated on, and say which year or basis it uses. A short sensitivity table (value at several cap rates) helps buyers see the range without implying a valuation opinion. OfferingStack's offering memorandum includes a Pricing & Valuation page that builds that table from the NOI you enter, and a Financial Overview page for the income and expense lines.
Estimates for marketing and screening only. This is not an appraisal, a valuation opinion, or financial, legal or tax advice.
Questions
How do you calculate a cap rate?
Divide the property's annual net operating income by the purchase price and multiply by 100. An NOI of $412,500 on a $7,500,000 price is a 5.50% cap rate.
Is a higher cap rate better?
It depends on the side of the deal. A higher cap rate means more income per dollar of price, but it usually reflects more risk: shorter leases, weaker tenants, older buildings or a less liquid location. A lower cap rate usually means buyers see the income as more secure.
Does the cap rate include mortgage payments?
No. NOI is calculated before debt service, so the cap rate is an unlevered yield. Financing is analysed separately with measures such as debt service coverage and cash-on-cash return.
Where do I find market cap rates in Canada?
From recent comparable sales and from the market reports that brokerages and appraisers publish for each property type and city. This tool doesn't supply market cap rates; it only does the arithmetic on the numbers you enter.
Is my data saved?
No. The calculation runs in your browser and nothing you type is sent to OfferingStack.
Related
Put the numbers in a finished offering memorandum.
Upload your fact sheet or rent roll, add the NOI and price, and review a watermarked preview of the financial and pricing pages before you buy anything.