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Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Cap Rate Calculator
What the property returns before any debt.
Cap rate is net operating income divided by price, and it is the first number anyone runs on a commercial property. This calculator takes gross rent, strips out vacancy and operating expenses to get to NOI, and divides by what you are paying. It then prices the same income at a market cap rate so you can see whether the asking price is defensible. Mortgage payments, depreciation and income tax stay out on purpose: cap rate measures the property, not your financing.
Cap rate
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What the same income is worth at different cap rates
Value sensitivity
Value across exit cap rates and NOI outcomes. Your case is outlined.
How it got there
| Gross rent | -- |
| Less vacancy | -- |
| Less operating expenses | -- |
| Net operating income | -- |
| Value at your market cap rate | -- |
| Versus your price | -- |
The ratios a lender or appraiser will run
| Effective gross income | -- |
| Operating expense ratio | -- |
| Gross rent multiplier | -- |
| Break-even occupancy, unlevered | -- |
| Every 25 bps of cap movement | -- |
All fourteen models
Common questions
- What is a good cap rate?
- It depends entirely on asset type, market and lease term. Broadly, 4-5% is prime-market pricing with a thin yield, 5-7% is core, 7-9% is typical for stabilized commercial, and anything above 12% usually means the income needs verifying rather than celebrating.
- Does cap rate include the mortgage?
- No. Cap rate is unlevered by definition, which is what makes it comparable across deals financed differently. To bring debt into the picture, use cash-on-cash return or DSCR.
- How do I calculate value from a cap rate?
- Divide net operating income by the cap rate as a decimal. $150,000 of NOI at a 6.5% cap is $150,000 / 0.065 = $2,307,692.