Free calculator

Cap rate calculator

Find the cap rate and net operating income on a rental property, then see what the property is worth at the cap rate you want to buy at.

Property numbers

Purchase price

Monthly rent

Other monthly income

Vacancy

Property taxes (yearly)

Insurance (yearly)

Repairs and other costs (yearly)

Property management

Your target cap rate

Leave the mortgage out. Cap rate measures the property itself, before any loan. Use the cash-on-cash calculator to see the return on a financed deal.

Cap rate

Gross yearly income–

Vacancy loss–

Operating expenses–

Net operating income (NOI)–

Value at your target cap rate–

Check cash-on-cash return

An estimate only. Verify income and expenses with real statements before you offer.

How the cap rate calculator works

Net operating income = rent and other income − vacancy − operating expenses
Cap rate = net operating income ÷ purchase price
Value = net operating income ÷ target cap rate

Cap rate is the yearly return a property would earn if you paid all cash. It lets you compare two rentals without the loan getting in the way. Operating expenses include taxes, insurance, repairs, management and any utilities the owner pays. They do not include the mortgage payment, depreciation or income tax.

A quick example

A $250,000 rental brings in $2,200 a month, or $26,400 a year. Take off 5% for vacancy and you have $25,080. Taxes, insurance, repairs and 8% management come to about $8,906, which leaves net operating income of roughly $16,174. Divide that by the price and the cap rate is about 6.5%. If you want a 7% cap rate, the same income supports a price near $231,000. These numbers are illustrative only.

What is a good cap rate?

It depends on the market: stable, high-demand areas trade at lower cap rates, and riskier or slower areas trade at higher ones.
Compare like with like: check the cap rate against recent sales of similar buildings nearby, not a national average.
Higher is not always better: a high cap rate can signal deferred repairs, weak tenants or a declining area.
Watch the inputs: sellers often quote a cap rate built on full occupancy and light expenses. Rebuild it with your own numbers.

Frequently asked questions

What is the difference between cap rate and cash-on-cash return?

Cap rate ignores financing and measures the property. Cash-on-cash return measures the cash flow after the mortgage against the cash you actually put in. Use both: cap rate to compare properties, and our cash-on-cash return calculator to judge the deal with your loan.

Does cap rate include the mortgage?

No. Net operating income is calculated before any loan payment, so two buyers with different loans see the same cap rate on the same property.

How do I use cap rate to value a property?

Divide the net operating income by the cap rate that similar properties sell for. A building with $50,000 of net operating income in a 6.25% cap rate market is worth about $800,000. Small changes in the cap rate move the value a lot, so be careful with the number you choose.