Rex says
Money math without the spreadsheet headache. Plug in your numbers and I'll show you exactly where the dollars land.
Try a scenario
Click to load — tweak from there.Inputs
Result
Value lost to cap rate expansion
$916,364
Exit value at original cap rate
$7,636,364
Exit value at expanded cap rate
$6,720,000
Impact as % of original equity
61.1%
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How to use this
- 1Enter projected exit-year noi ($).
- 2Enter purchase / current market cap rate (%).
- 3Enter assumed cap rate expansion by exit (bps).
- 4Enter original equity invested ($).
- 5Read your value lost to cap rate expansion on the right — it updates as you type.
- 6Hit Share to keep the scenario or send it to someone.
About this calculator
Cap rate expansion — meaning cap rates rise, which pushes values down for a given NOI — is the single biggest hidden risk in commercial and multifamily underwriting, and it's separate from NOI growth risk entirely. Even if you execute your business plan perfectly and grow NOI as projected, a 75-100 basis point rise in market cap rates over a five-year hold can wipe out most or all of your projected equity gain. This calculator takes your projected exit-year NOI and lets you compare the exit value at your purchase cap rate versus a higher assumed exit cap rate, showing the dollar value at risk. Sophisticated underwriters routinely bake in 25-50bps of cap rate expansion as a base case, not a stress case, when interest rates are elevated or trending up, because cap rates historically track long-term rates with a lag. Always model at least three cap rate scenarios before committing to a deal, especially anything underwritten on trailing-twelve NOI with aggressive rent growth assumptions.
Worked example
Using the values the calculator loads with:
Inputs
- Projected exit-year NOI: 420000 $
- Purchase / current market cap rate: 5.5 %
- Assumed cap rate expansion by exit: 75 bps
- Original equity invested: 1500000 $
Results
- Value lost to cap rate expansion: $916,364
- Exit value at original cap rate: $7,636,364
- Exit value at expanded cap rate: $6,720,000
- Impact as % of original equity: 61.1%
What each field means
Inputs
- Projected exit-year NOI ($)
- The projected exit-year noi used in the calculation, measured in $. Starts at 420000 $ so you have a working example on load.
- Purchase / current market cap rate (%)
- The purchase / current market cap rate used in the calculation, measured in %. Starts at 5.5 % so you have a working example on load. Accepted range: 1–15 %.
- Assumed cap rate expansion by exit (bps)
- The assumed cap rate expansion by exit used in the calculation, measured in bps. Starts at 75 bps so you have a working example on load. Accepted range: 0–300 bps.
- Original equity invested ($)
- The original equity invested used in the calculation, measured in $. Starts at 1500000 $ so you have a working example on load.
Results
- Value lost to cap rate expansion
- Returned as a money amount in US dollars and shown as the headline result. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Exit value at original cap rate
- Returned as a money amount in US dollars. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Exit value at expanded cap rate
- Returned as a money amount in US dollars. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Impact as % of original equity
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
FAQ
How much cap rate expansion should I model?
25-50bps is a reasonable base case in a stable rate environment; 75-150bps is prudent stress testing when rates are elevated or the Fed is in a hiking cycle. Never underwrite a deal assuming cap rate compression (rates falling) as your base case — that's speculation, not underwriting.
Why does cap rate expansion hurt more on longer holds?
It doesn't directly get worse with time, but longer holds give cap rates more calendar time to drift with interest rate cycles, and the dollar impact compounds against a larger NOI base if you've also grown income. A 100bps move on a stabilized $500k NOI property costs far more in dollar terms than the same move on a $150k NOI property.
Is cap rate expansion the same as rising interest rates?
They're correlated but not identical. Cap rates reflect required return for real estate risk relative to alternatives, and they can expand even without rate changes if perceived risk rises (e.g., oversupply, weak rent growth) or compress even with flat rates if capital floods into real estate.
How do I protect a deal against this risk?
Underwrite conservatively with cap rate expansion built in, use longer-term fixed-rate debt to avoid refinance risk compounding the problem, and prioritize NOI growth levers (below-market rents, expense reduction) that can outpace modest cap rate drift.
Accuracy and limitations
- Results are estimates before tax, fees, and inflation unless an input explicitly covers them.
- Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.
- This is educational maths, not financial advice. Check anything contractual with the lender or your accountant.
Related tools
Cite this calculator
Writing about this topic? Grab a citation — every link helps keep these tools free.
RevenueLab. (2026). Cap Rate Expansion Sensitivity Calculator. Retrieved from https://www.revenuelab.fyi/toolbox/cap-rate-expansion-sensitivity
<p>Source: <a href="https://www.revenuelab.fyi/toolbox/cap-rate-expansion-sensitivity" target="_blank" rel="noopener">Cap Rate Expansion Sensitivity Calculator — RevenueLab</a> (2026).</p>
Source: [Cap Rate Expansion Sensitivity Calculator — RevenueLab](https://www.revenuelab.fyi/toolbox/cap-rate-expansion-sensitivity) (2026).