Cap ratecalculator.

Net operating income divided by price. NOI is gross scheduled income, less vacancy and credit loss, less operating expenses. Nothing about the loan enters it: no principal, no interest, no points. So the same building has one cap rate and as many cash-on-cash returns as there are ways to finance it. Put the price in the calculator above and it shows the arithmetic line by line.

What it costs to run the building whether or not you owe anyone money: property tax, insurance, utilities the owner pays, management, on-site payroll, turnover, repairs, licences, and a reserve for the things that wear out. What is excluded is debt service, depreciation, and capital work that adds an asset rather than maintaining one, a new roof or a seismic retrofit. Leaving the reserve out is the most common way an NOI ends up flattering.

Usually because it is a different number wearing the same name. Pro-forma cap rate uses rents the building does not collect yet, an expense line with no reserve in it, and sometimes a tax figure from before the sale reassesses the property. In-place cap rate uses the rent roll and the last twelve months of bills. Both are legitimate to publish; quoting one and labelling it the other is not. Every listing on this site publishes both, alongside the rent roll they came from.

Both, for different jobs. GRM is price divided by annual gross rent, it needs no expense data, and it is what gets quoted across the phone on small buildings where nobody trusts the seller's expense numbers yet. Cap rate is what the deal gets underwritten and financed on once the bills are in hand. A short version: GRM to sort a list, cap rate to buy. The calculator above gives you both from the same inputs.

It does not change the formula and it changes almost everything else that feeds it. Under the LA Rent Stabilization Ordinance the allowable annual increase is set by the city and the upside is a function of turnover you cannot schedule, so in-place income carries far more weight than a market-rent projection. It is also why the same cap rate means two different things on two buildings a block apart. Every building page on this site states the likely RSO status and the year built it is inferred from.

There is no honest general answer and anyone who gives you one is selling something. A cap rate is the price of an income stream, so it moves with the debt market, the condition of the building, how much of the rent is regulated, and what the buyer intends to do with the lot. The useful question is not what the number should be, it is what comparable buildings actually closed at in the last few months, which is a question about specific trades rather than about a benchmark. Send me an address and I will tell you what the comparable sales did.

It tells you what the income is worth. On a lot with development rights the dirt can be worth more than the income, and then the cap rate is answering a question you should not be asking. That is the single most expensive mistake made on small LA multifamily: pricing an underbuilt corner off its rent roll. The valuation I run prices the income and the lot separately and shows you which one wins.