Cap rate (short for "capitalization rate") answers one question: if you paid all cash for this property today, what yield would you earn in the first year? The formula is simple —
A $2M property producing $180,000 a year in NOI has an 9.0% cap rate. Higher cap rate generally means either a cheaper price for the income it produces, or more risk priced in — a shorter lease, a weaker tenant, a tougher location. It's a starting signal, not a verdict.
Where the number on our deal pages actually comes from
We don't have access to every seller's real financials — nobody does, at this stage of a listing. So we use whichever of these applies, and we tell you which one you're looking at:
- Broker-stated. When the listing itself states a cap rate, we use it as-is.
- Tenant-benchmark estimate. When it doesn't, we estimate one from published net-lease rent comparables for that tenant type, and flag it separately as an estimate rather than presenting it as fact.
We'd rather show you an honestly-labeled estimate than quietly smooth over the gap.
Why it drives everything else on the page
Cap rate and price together are what let us back into Net Operating Income for a listing where we were never handed a full P&L (see the NOI guide). NOI is the number every other figure on the page — DSCR, stress DSCR, grade, target offer — is built from. Get the cap rate wrong or unlabeled, and everything downstream drifts with it.
The one thing cap rate alone won't tell you
A 9.5% cap rate and a 6% cap rate aren't automatically "good" or "bad" in isolation — they reflect different risk. That's exactly why we don't grade listings on cap rate by itself. We grade on stressed DSCR, which accounts for what happens to that income under a more conservative case.