See the broker cap and the true (post-reserves) cap side by side — the gap sellers don't show you.
See the going-in cap rate the honest way — the broker's headline cap vs the true cap after reserves. Required: NOI and purchase price. Optional: the reserves the broker left out.
Broker cap vs. true cap
Going-in cap rate
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lower yield (3%)higher yield (9%)
Broker True
Enter NOI and purchase price to see the cap rate — then add reserves to see the true cap.
Broker cap = NOI ÷ price; true cap = (NOI − reserves) ÷ price. The gap is the yield the seller's pro forma hides. Whether a cap rate is attractive depends on the asset and market — the full analysis benchmarks it against live comps.
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What the capitalization rate tells you
The capitalization rate (cap rate) is the unlevered yield a commercial property produces in its first year, independent of how you finance it. It is the single fastest way to compare deals on a like-for-like basis: a higher cap rate means more income per dollar of price, and a lower cap rate means you are paying more for each dollar of NOI.
The formula is simple: Cap Rate = Net Operating Income (NOI) ÷ Purchase Price. A property with $300,000 of NOI bought for $5,000,000 carries a 6.0% cap rate. Run it in reverse to value a property: Value = NOI ÷ Target Cap Rate, so $300,000 of NOI at a 6.5% target cap implies a $4,615,000 price.
How to interpret it
NOI must be calculated before debt service and before capital items. The number that trips up most buyers is reserves: a broker's NOI usually excludes replacement reserves, while a lender or an honest underwriter subtracts them. That is the difference between the broker cap (the headline) and the true cap (what you actually earn). On a tight deal the gap can be 30–60 basis points — enough to turn a "6.0% cap" into a 5.5% reality.
Typical ranges in CRE
Cap rates move with asset class, market tier, and interest rates. As a rough 2025 frame: stabilized multifamily in primary markets often trades 4.5–5.5%; secondary and tertiary multifamily 5.5–7%; industrial 5–7%; and net-lease or value-add deals can sit anywhere from the high 5s to the 8s depending on credit and condition. A cap rate well outside the band for its type is usually a signal — either mispriced NOI, deferred risk, or an input entered wrong (rents keyed monthly instead of annual is the classic). Use the broker-vs-true toggle above to pressure-test the headline before you trust it.
Frequently asked questions
How do you calculate cap rate?
Divide annual Net Operating Income (NOI) by the purchase price. NOI is rental income plus other income, minus vacancy and operating expenses, but before mortgage payments and before income tax. Example: $300,000 NOI on a $5,000,000 price is a 6.0% cap rate.
What is a good cap rate?
It depends on asset class, market, and risk. Stabilized properties in strong markets trade at lower cap rates (4.5–5.5%) because buyers accept less yield for safety; riskier or secondary-market deals price higher (6–8%+). A \"good\" cap rate is one that compensates you for the specific risk of that property versus comparable sales.
What is the difference between broker cap and true cap?
The broker cap usually excludes replacement reserves and sometimes management, presenting the highest possible NOI. The true (post-reserves) cap subtracts the capital you actually need to set aside, so it reflects the yield you really collect. The true cap is lower, and that gap is what this calculator surfaces.
Should NOI include the mortgage payment?
No. NOI is calculated before debt service. Subtracting the mortgage gives you cash flow, not NOI — and folding debt into NOI breaks the cap-rate comparison, since cap rate is meant to be financing-independent.