Cap Rate Spread Calculator
Measure the spread between a property’s cap rate and your financing or benchmark rate — the gap, in basis points, that signals positive or negative leverage.
How it works
Spread = cap rate − benchmark rate · Basis points = spread × 100
The cap rate spread is the gap between a property’s unleveraged yield and the cost of debt (or a risk-free benchmark like the 10-year Treasury). When the cap rate sits above the loan rate the spread is positive, and borrowing amplifies returns — positive leverage; when it is below, debt drags returns down. Investors watch this spread as a market-wide risk gauge, because a thin or negative spread means little reward for the extra risk of owning real estate over bonds.
Worked example
A property with a 6.5% cap rate financed at 5.0% has a spread of 1.5%, or 150 basis points — positive leverage, since the asset yields more than the debt costs.
Frequently asked questions
What is positive versus negative leverage?
Positive leverage occurs when the cap rate exceeds the loan constant or rate, so adding debt raises your return on equity. Negative leverage is the reverse — borrowing costs more than the property yields — and each dollar of debt lowers your levered return.
Which benchmark rate should I compare against?
Use your actual mortgage rate to judge a specific deal’s leverage, or the 10-year Treasury to gauge how richly the whole market is priced. The Treasury spread is a common proxy for the risk premium investors are being paid.
What is a healthy cap rate spread?
It shifts with the interest-rate environment, but historically investors have looked for a few hundred basis points over the risk-free rate. A compressed or negative spread signals aggressive pricing and thin margin for error.
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Educational estimate, not financial or investment advice.