How to Use a Multifamily Cap Rate Calculator
The capitalization rate (cap rate) is the most widely used metric in commercial real estate investing. Understanding how to calculate and interpret it is essential for any multifamily buyer or seller in Los Angeles.
The Cap Rate Formula
Cap Rate = Net Operating Income (NOI) ÷ Current Market Value (or Purchase Price)
Example: A building with $100,000 NOI selling for $2,000,000 has a 5.0% cap rate.
What Is NOI?
Net Operating Income = Gross Rents - Vacancy (typically 3–5%) - Operating Expenses (property taxes, insurance, management, repairs, utilities)
Note: NOI does NOT include mortgage debt service. Cap rate is a pre-debt metric.
How to Interpret Cap Rates
- Low cap rate (3–5%): Premium location, strong demand, lower cash flow yield — but often lower risk
- Mid cap rate (5–7%): Balance of income and appreciation potential
- High cap rate (7%+): Higher income yield but typically more risk — older buildings, secondary markets, or value-add situations
LA County Cap Rate Context (2024–2025)
In prime LA submarkets (Santa Monica, Venice, Culver City, Manhattan Beach), multifamily cap rates typically trade between 3.5%–5.0%. In secondary markets (Inglewood, Long Beach, Torrance), cap rates run 4.5%–6.0%.
Want a professional cap rate analysis for a specific property? Contact Samimi CRE Advisors for a complimentary underwriting review.