Cap Rate Calculator
Net operating income ÷ price. The brokers' favorite metric. Useful, but not the whole story.
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Implied price at different cap rates
Sam's Take
Cap rate is what brokers quote. It's useful because it ignores financing — letting you compare two deals apples-to-apples. But it's not the metric to make personal investment decisions on, because YOUR financing changes everything. A 6% cap rate property at 50% leverage with a 7% mortgage rate cash-flows differently than the same building at 75% leverage. Always re-run cash-on-cash with your actual loan.
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What cap rate is, and why people use it
Cap rate (short for capitalization rate) is one number: the property's net operating income divided by the price, expressed as a percentage. NOI is the rent the property collects, minus all the operating expenses (taxes, insurance, maintenance, management, vacancy) — but before the mortgage payment. A property generating $50,000 in NOI on a $1,000,000 purchase has a 5% cap rate.
People use cap rate because it lets you compare two completely different properties on the same footing, ignoring how each was financed. Whether you paid all cash or borrowed 80%, the cap rate is the same — it's a measure of the property's intrinsic yield, not your deal.
What's a "good" cap rate? It depends on the market
There is no universal "good" cap rate. The right number depends entirely on where the property is and what kind of building it is. In 2026:
- Major coastal markets (Boston, NYC, LA, SF) — stabilized properties trade at 4-6%.
- Secondary markets (Worcester, Providence, Hartford, most of New England outside the I-95 corridor) — 6-8%.
- Tertiary and rural markets — 8-12% is common, sometimes higher.
And here's the part beginners get wrong: a higher cap rate does not mean a better deal. It usually means more risk. Tougher market, older building, harder tenant base, more management headaches. A 10% cap in a tertiary market and a 5% cap in Cambridge can both be the right deal — for different investors with different appetites for risk and different operational capacity.
Cap rate vs cash-on-cash return — they answer different questions
Cap rate measures the property. Cash-on-cash measures your investment in the property. They're not the same number and they're not interchangeable.
Use cap rate when you're comparing one property to another, especially across different markets or financing structures. Use cash-on-cash when you're deciding whether to actually put your own money into a specific deal — because that one factors in the loan you're taking out, which is the main thing that determines whether the deal works for you.