Question 1

How do you calculate cap rate?

Accepted Answer

Cap rate = net operating income (NOI) ÷ property value, expressed as a percentage. For example, a property with $150,000 NOI valued at $2,300,000 has a cap rate of about 6.5%. Rearranged, value = NOI ÷ cap rate, and NOI = value × cap rate. This calculator solves for whichever one you leave out.

Question 2

What is a good cap rate for commercial property?

Accepted Answer

There is no universal "good" cap rate — it varies by asset type, location, tenant quality, and lease term, and moves with interest rates. In South Florida, stabilized retail and office often trade in the 5.5–7.5% range while higher-risk or value-add deals price higher. The only reliable benchmark is recent comparable sales for that specific asset and submarket.

Question 3

Does a higher cap rate mean a better deal?

Accepted Answer

Not necessarily. A higher cap rate means more income relative to price, but it often signals more risk — a weaker location, shorter leases, or deferred maintenance. A lower cap rate usually means a safer, more desirable asset. Judge the cap against comparable sales, not in isolation.

Cap rate & value calculator.

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