What is a good cap rate for commercial real estate?

A 'good' cap rate depends on the property type, location, and risk profile. In Tampa Bay, cap rates typically range from 5% to 8% for stabilized commercial properties. Lower cap rates (4-5%) indicate premium, lower-risk assets, while higher cap rates (8%+) suggest higher yield but potentially more risk.

How do you calculate cap rate?

Cap rate is calculated by dividing the Net Operating Income (NOI) by the property purchase price, then multiplying by 100 to get a percentage. For example, a property with $100,000 NOI and a $1,500,000 purchase price has a cap rate of 6.67%.

What is the difference between cap rate and ROI?

Cap rate measures the unlevered return based on property price and NOI — it ignores financing. ROI (return on investment) accounts for your actual cash invested, including leverage from a mortgage. A property can have a 6% cap rate but deliver a 12%+ cash-on-cash ROI when financed.

Cap Rate Calculator for Commercial Real Estate

Cap rate is the single most important number in commercial real estate investing. It tells you the expected return on an investment property based on its income — no financing, no speculation, just the property's ability to generate cash flow. I use cap rate analysis on every deal I advise on, and now you can run the same numbers yourself. Enter the NOI and price below, or flip it around to estimate what a property should be worth at your target cap rate.

Calculate Cap Rate

Enter the annual Net Operating Income and purchase price to find the cap rate.

Net Operating Income (Annual)

Property Price

Reverse: Estimate Property Value

Enter NOI and your target cap rate to estimate what the property should be worth.

Net Operating Income (Annual)

Target Cap Rate (%)

How Is Cap Rate Calculated?

The formula is straightforward: Cap Rate = Net Operating Income (NOI) / Property Price × 100. NOI is your gross rental income minus operating expenses (property taxes, insurance, maintenance, management fees) — but before debt service. This gives you an apples-to-apples comparison between properties regardless of how they are financed.

What Is a Good Cap Rate in Tampa Bay?

According to recent market data, Tampa Bay commercial cap rates generally fall between 5% and 8% depending on property type and class. NNN retail and Class A office trend lower (5-6%), while value-add multifamily and industrial properties can trade at 6.5-8%+. Context matters — a 7-cap in Brandon is a very different risk profile than a 7-cap in a rural county. That is where broker expertise comes in.

When Should You Use the Reverse Calculator?

The reverse cap rate calculator is useful when you know a property's NOI and want to determine a fair purchase price based on your target return. If you require a 7% cap rate on a property generating $150,000 in NOI, the reverse calculator tells you the maximum price you should pay is approximately $2,142,857. It is a quick sanity check before you write an LOI.

Cap Rate FAQ

What is a good cap rate for commercial real estate?: A "good" cap rate depends on the property type, location, and risk profile. In Tampa Bay, cap rates typically range from 5% to 8% for stabilized commercial properties. Lower cap rates (4-5%) indicate premium, lower-risk assets, while higher cap rates (8%+) suggest higher yield but potentially more risk.
How do you calculate cap rate?: Cap rate is calculated by dividing the Net Operating Income (NOI) by the property purchase price, then multiplying by 100 to get a percentage. For example, a property with $100,000 NOI and a $1,500,000 purchase price has a cap rate of 6.67%.
What is the difference between cap rate and ROI?: Cap rate measures the unlevered return based on property price and NOI — it ignores financing. ROI (return on investment) accounts for your actual cash invested, including leverage from a mortgage. A property can have a 6% cap rate but deliver a 12%+ cash-on-cash ROI when financed.