How to Calculate Exit Cap Rate

Exit Cap Rate Calculator

Calculate the Terminal Capitalization Rate for Real Estate Pro Formas

Calculated Exit Cap Rate

0.00%

---

Understanding the Exit Cap Rate

The Exit Cap Rate, also known as the Terminal Cap Rate, is a critical metric used in commercial real estate to estimate the resale value of a property at the end of a holding period. It represents the yield an investor expects to receive based on the property's income at the time of sale.

How to Calculate Exit Cap Rate

While this calculator works backward from a sale price, the traditional formula for determining the Exit Cap Rate during underwriting is:

Exit Cap Rate = (Net Operating Income / Sale Price) × 100

Why the Exit Cap Rate Matters

The exit cap rate has a massive impact on your Internal Rate of Return (IRR). Even a small variation in the cap rate can swing the property's value by hundreds of thousands of dollars. Generally, investors use a "conservative" exit cap rate that is 0.5% to 1.0% (50 to 100 basis points) higher than the acquisition cap rate to account for the aging of the asset and potential market fluctuations.

Practical Example

• Projected NOI at Sale: $120,000
• Expected Sale Price: $2,000,000
• Calculation: (120,000 / 2,000,000) = 0.06
• Result: 6.00% Exit Cap Rate

Disclaimer: This calculator is for educational purposes only. Real estate investments carry risk. Always consult with a financial advisor before making investment decisions.

function calculateExitCap() { var noi = parseFloat(document.getElementById('noi_at_sale').value); var price = parseFloat(document.getElementById('sale_price').value); var resultBox = document.getElementById('result-box'); var resultDisplay = document.getElementById('exit_cap_result'); var interpretation = document.getElementById('interpretation'); if (isNaN(noi) || isNaN(price) || price <= 0 || noi < 0) { alert("Please enter valid positive numbers for both NOI and Sale Price."); return; } var exitCap = (noi / price) * 100; resultDisplay.innerHTML = exitCap.toFixed(2) + '%'; resultBox.style.display = 'block'; var message = ""; if (exitCap = 4 && exitCap <= 7) { message = "This represents a standard market cap rate for many stable commercial assets."; } else { message = "A higher exit cap rate suggests a higher risk profile or an asset in a secondary/tertiary market."; } interpretation.innerHTML = message; }