Cap rate and NOI calculator

Build NOI the way the lender will

The definitions come from the OCC's examiner handbook, which is what bank credit officers train on:

• Effective gross income = revenue after a vacancy rate and expected credit losses¹.
• NOI = annual gross income less operating expenses¹. Operating expenses exclude interest, principal and income taxes¹.
• Underwritten operating expenses include a replacement reserve, whether or not it is funded¹.
• Cap rate = stabilized NOI divided by the property's sales price¹. Value by direct capitalization = NOI divided by the cap rate¹.

The reserve is the line borrowers most often leave out. Leaving it in your own numbers means your NOI will match the lender's, and the loan you plan for is the loan you get.

Worked example

Illustration, not an appraisal: $400,000 of gross potential rent less 5% vacancy is $380,000 of effective gross income. Subtract $160,000 of operating expenses and a $20,000 reserve and NOI is $200,000. At a $3,200,000 price, the cap rate is 6.25%. If buyers demanded half a point more, the same income would be worth $2,962,963, which is $237,037 less. That is why a small move in cap rates changes the loan a refinance can support.

Where cap rates are heading

CBRE's H1 2026 survey found the all-property average cap rate essentially flat, with the most compression in neighborhood retail, then hotel and industrial². Cap rates compressed more for class B and C and value-add assets than for class A and stabilized assets². About 60% of CBRE respondents expect no change in cap rates over six months, but more now expect increases, led by infill multifamily². Asked what 10-year Treasury yield would bring a notable pickup in sales, respondents answered 3.75% (median CBRE respondent), versus about 4.6% when CBRE wrote in mid-July 2026². The 10-year was 4.94% on October 30, 2026 when this page was built, 1.19 points above that level (live readings on the rates page).

How a lender turns this into a loan

The appraiser values the property by direct capitalization (NOI over a market cap rate), and the lender then applies its LTV limit to that value, its DSCR minimum to the NOI, and often a debt-yield floor. Run the same NOI through the DSCR calculator and the loan sizer to see which test binds. Note the link between the two ratios: debt yield equals the cap rate divided by LTV, so a low cap rate property hits a lender's debt-yield floor at lower leverage.

Edge cases

• Going-in vs stabilized. A building in lease-up has a low going-in cap rate on today's income. Permanent lenders size on in-place NOI; a bridge lender sizes on the plan.
• Below-market rents. If leases are under market, the in-place NOI understates value to a buyer but it is still the NOI a lender uses until the rents roll.
• Owner-occupied property has no arm's-length rent; lenders size it on the business's cash flow instead.

Method and formula

effective gross income = gross potential rent x (1 - vacancy %) + other income NOI = EGI - operating expenses - replacement reserve cap rate = NOI / price x 100; value = NOI / (cap rate / 100) expense ratio = (operating expenses + reserve) / EGI