Cap Rate Calculator

The capitalization rate is real estate’s standard yardstick: the property’s annual net operating income as a percentage of its value. Enter the price, rent, expected vacancy and yearly operating expenses to get the NOI and cap rate for comparing properties.

Taxes, insurance, maintenance, management, utilities you pay — not mortgage payments

Results

Assumptions: Expenses are annual operating costs only; debt service, income tax and capital expenditures are excluded, per the standard cap-rate definition.

Formula

Cap rate strips financing out of the picture:
NOI = Rent × 12 × (1 − vacancy%) − Expenses  ·  Cap rate = NOI ÷ Value × 100

How to use this calculator

  1. Enter the property’s value or asking price.
  2. Enter the monthly rent and a realistic vacancy allowance.
  3. Add up the yearly operating expenses (excluding any mortgage), then Calculate.
Cap Rate Calculator — how the calculation works, illustrated
Cap Rate Calculator — how the calculation works, illustrated

Worked example

A $200,000 property renting for $1,500 a month, 5% vacancy, $4,000 yearly expenses.

  1. Gross rent: $18,000; after vacancy: $17,100.
  2. NOI: 17,100 − 4,000 = $13,100.
  3. Cap rate: 13,100 ÷ 200,000 = 6.55%.

Result: The property yields a 6.55% cap rate.

Frequently asked questions

What is a “good” cap rate?

It depends on the market and risk. Properties in expensive, low-risk areas often trade at 4–5%; higher-risk or secondary markets may offer 7–10%. There is no universal good number — compare against similar local properties.

Why are mortgage payments excluded?

Cap rate measures the property’s own performance, independent of how any particular buyer finances it. Two buyers with different loans still see the same cap rate.

Cap rate vs cash-on-cash return — different?

Yes. Cash-on-cash includes your loan and measures return on the cash you actually invested. Cap rate is the unleveraged property yield.

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