Cap Rate Calculator
Calculate the capitalization rate of a rental property. Enter income, operating expenses and price to get net operating income and cap rate instantly.
Updated 2026-06-14 · Free · No sign-up · Runs privately in your browser
Show the formula & steps
How the Cap Rate Calculator Works
The capitalization rate, or cap rate, is the single most common way investors compare income properties. It tells you the unleveraged annual return a property produces relative to its price. Enter the annual rental income, annual operating expenses, and the property value or purchase price, and the calculator returns the net operating income and the cap rate.
The Formula
First find net operating income (NOI):
NOI = annual income − annual operating expenses
Then divide by the property value:
Cap rate (%) = NOI ÷ property value × 100
Cap rate deliberately ignores your mortgage. It describes the property as if you bought it with cash, which makes it useful for comparing deals on equal footing.
Worked Example
Suppose a small rental brings in 36,000 dollars a year and has 12,000 dollars in operating expenses, on a purchase price of 400,000 dollars:
- NOI = 36,000 − 12,000 = 24,000 dollars
- Cap rate = 24,000 ÷ 400,000 × 100 = 6.00%
- Monthly NOI = 24,000 ÷ 12 = 2,000 dollars
A 6% cap rate means the property yields 6% of its value in net income each year before financing.
Reading the Cap Rate
| Cap rate | Typical interpretation |
|---|---|
| 3% - 4% | Prime location, low risk, high price |
| 5% - 7% | Balanced risk and return |
| 8% - 10% | Higher yield, often higher risk |
| Over 10% | Strong cash flow or elevated risk |
What to Keep in Mind
- Be honest about expenses. Include property taxes, insurance, management, repairs, vacancy and reserves, not just the obvious bills.
- Cap rate is a snapshot. It uses current income and price, so it changes as rents and values move.
- It excludes financing. Two investors paying the same price get the same cap rate even with very different mortgages.
- Pair it with other metrics. Use cash-on-cash return and total ROI to capture the effect of leverage and appreciation.
This tool is for estimation and comparison. Always verify income and expense figures before making an investment decision.
Frequently asked questions
How do you calculate cap rate?+
Divide net operating income by the property value and multiply by 100. NOI is annual income minus annual operating expenses. For a property earning 24,000 dollars NOI on a 400,000 dollar price, the cap rate is 24,000 / 400,000 x 100 = 6%.
What is a good cap rate?+
Many investors target 5% to 10%, but it depends on the market and risk. Lower cap rates (4% to 5%) are common in prime, low-risk areas, while higher cap rates (8% or more) often signal higher risk or growth markets.
What is included in net operating income?+
NOI is rental and other property income minus operating expenses such as property taxes, insurance, management, maintenance, utilities and vacancy. It excludes mortgage payments, income tax and depreciation.
Does cap rate include the mortgage?+
No. Cap rate ignores financing so it reflects the property itself, not your loan. To measure return on the cash you invest after a mortgage, use cash-on-cash return instead.
What is the difference between cap rate and ROI?+
Cap rate is NOI divided by property value and assumes an all-cash purchase. ROI and cash-on-cash return factor in financing, appreciation and your actual cash invested, so they can differ a lot from the cap rate.