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Cap Rate Calculator
The capitalization rate is a property’s annual net operating income as a percentage of its value — the return it would earn if bought with cash. Enter the price, the rent it can collect, a vacancy allowance and operating expenses to get the cap rate and NOI.
- Net operating income
- $39,000.00
- Effective gross income
- $57,000.00
- Operating expense ratio
- 31.58%
Saved setups
Save a set of inputs you reuse — your usual rate, your loan, your room sizes — and load it back in one tap.
Your recent calculations
Results you calculate here are kept on this device so you can come back to them.
Formula
How to use it
- Enter the purchase price or current market value.
- Enter the gross rent for a full year at full occupancy.
- Enter a vacancy and credit-loss allowance.
- Enter yearly operating expenses, leaving out mortgage payments.
Worked examples
A $500,000 property with $60,000 of rent, 5% vacancy and $18,000 of expenses
- Effective gross income
- $57,000.00
- Net operating income
- $39,000.00
- Cap rate
- 7.8%
- Operating expense ratio
- 31.58%
A $320,000 house renting for $2,500 a month with 8% vacancy and $10,000 of expenses
- Effective gross income
- $27,600.00
- Net operating income
- $17,600.00
- Cap rate
- 5.5%
What goes into NOI
Operating expenses include property taxes, insurance, repairs and maintenance, property management, utilities the owner pays, and landscaping or cleaning. They do not include mortgage principal or interest, depreciation, income tax or one-off capital improvements such as a new roof.
Leaving financing out is the point: cap rate describes the property, not the buyer’s loan, so two properties can be compared regardless of how each would be financed.
Reading a cap rate
Cap rates for US investment property mostly fall between about 4% and 10%. Lower rates go with prime locations and stable tenants — you pay more for each dollar of income because it is safer. Higher rates signal more risk or less expected growth.
Turn it around to estimate value: a property with $40,000 of NOI is worth $800,000 at a 5% cap rate but $500,000 at 8%. Cap rate ignores financing, tax and future appreciation, so it is a screening figure rather than a full return — and not investment advice.
Questions people ask
How do you calculate cap rate?
Divide net operating income by the property’s value. $40,000 of NOI on a $500,000 property is an 8% cap rate.
What is a good cap rate?
There is no single answer. Many investors look for 5–8%, accepting less in expensive, stable markets and wanting more in riskier ones. Compare with recent sales of similar properties in the same area.
Does cap rate include the mortgage?
No. Cap rate uses income before any loan payments. To see the return on the cash you actually put in after financing, use cash-on-cash return instead.