Cap Rate Calculator

The capitalization rate (cap rate) is the unlevered annual return an income property produces: its net operating income divided by its value or purchase price. It is the fastest way to compare two properties on the same footing, because it strips out financing entirely — how you pay for the building doesn’t change the cap rate.

Enter the property value, rent, vacancy and operating expenses above. The calculator computes net operating income, the cap rate, and the value the property would support at your target cap rate. Everything runs in your browser — your numbers are never sent anywhere. For the levered picture (with a mortgage), follow up with the cash-on-cash return calculator.

What is a cap rate?

A cap rate is the percentage of a property’s value that its net operating income represents each year. A property generating $20,000 of NOI on a $300,000 price has a 6.67% cap rate. Higher cap rates mean more income per dollar of price — but they often come with more risk: a worse location, older stock, or heavier management burden.

cap rate = net operating income ÷ property value
net operating income = gross operating income − operating expenses
operating expenses exclude debt service, income tax, and depreciation

How to calculate a cap rate

Start with gross scheduled rent and subtract vacancy and credit loss to get gross operating income. Then subtract operating expenses — property tax, insurance, HOA, repairs and maintenance, and property management. What remains is NOI. Divide NOI by the property’s value to get the cap rate.

gross operating income = gross rent × (1 − vacancy %)
NOI = GOI − (tax + insurance + HOA + repairs + management)
cap rate = NOI ÷ value

What is a good cap rate?

There is no universal “good” cap rate. In high-appreciation coastal markets, 3–5% is normal; in cash-flow markets of the Midwest and South, 7–10% is common. Rather than chase a number, set the target to the unlevered return you require for the risk, and let the calculator flag whether a deal clears it. The “value at target cap rate” result tells you what the property is worth to you at that return — a quick way to frame an offer.

Cap rate vs. cash-on-cash and DSCR

Cap rate ignores the loan; cash-on-cash and DSCR include it. A property can show a strong cap rate but a weak DSCR or negative cash-on-cash if the financing is too aggressive. Investors typically screen with cap rate first, then stress-test the financing with DSCR (what lenders check) and cash-on-cash (what your wallet feels). The 50% rule calculator and GRM calculator offer even faster pre-screening.

Limitations of cap rate

Cap rate ignores financing, income tax, depreciation benefits, capital expenditures, and future rent growth. It is a snapshot of one year’s unlevered yield, not a total return. Two properties with identical cap rates can be very different investments once debt, appreciation and tax treatment are included — which is why cap rate is a starting point, not a verdict. See the glossary for the terms behind each metric.

Frequently asked questions

What is a good cap rate for a rental property?

It depends on market and risk. Roughly: 3–5% in high-appreciation coastal markets, 5–7% in balanced markets, and 7–10%+ in cash-flow-oriented markets. Set the calculator’s target to the unlevered return you require for the risk and compare the deal against it.

Is a higher cap rate better?

Not always. A higher cap rate means more income relative to price, but it often signals more risk — older property, weaker location, or more management. A 4% cap rate in a prime, appreciating market can be a better long-term investment than a 10% cap rate in a declining one. Cap rate measures one year’s yield, not total return.

Does the cap rate include the mortgage?

No. Cap rate is unlevered — it ignores financing entirely. That is its strength for comparing properties, but it means cap rate alone can’t tell you whether a deal cash-flows with a loan. For that, use the DSCR calculator or cash-on-cash calculator.

How is net operating income (NOI) calculated here?

NOI = (gross monthly rent × 12 × (1 − vacancy %)) − annual property tax − annual insurance − (monthly HOA × 12) − (monthly repairs × 12) − (property management % × gross annual rent). Debt service, income tax and depreciation are not operating expenses, so they are not subtracted.

Does this calculator upload my data?

No. Every calculation runs locally in your browser — the inputs never leave your device and are not sent to any server. Confirm it in your browser’s network tab while editing the fields.