Cap Rate Calculator
Find a rental property’s capitalization rate from its net operating income and value, or work backward to the value a target cap rate implies.
How it works
Cap rate = NOI ÷ property value × 100 · Value = NOI ÷ (cap rate ÷ 100)
The capitalization rate is a property’s annual net operating income (rent minus operating expenses, before any mortgage) divided by its price. It expresses the return you would earn buying the property outright in cash, which makes it a quick way to compare deals on the same footing. A higher cap rate means a cheaper price relative to income — often more risk or a weaker location — while a lower cap rate signals a premium, in-demand asset.
Worked example
A building with $60,000 of net operating income priced at $1,000,000 has a cap rate of 60,000 ÷ 1,000,000 × 100 = 6%. Turned around, if you require a 6% cap rate, that same $60,000 of income is worth 60,000 ÷ 0.06 = $1,000,000.
Frequently asked questions
What counts as net operating income?
NOI is gross rental income minus operating expenses — property taxes, insurance, maintenance, management and vacancy — but before mortgage payments, depreciation and income tax. Financing is deliberately excluded so the cap rate reflects the property, not your loan.
What is a good cap rate?
It depends on the market and risk. Prime properties in strong cities often trade at 4–5%, while higher-risk or secondary-market assets may run 7–10%. A cap rate only means something compared with similar properties in the same area.
Does cap rate account for my mortgage?
No. Cap rate is an unleveraged measure. To judge the return on your actual cash after financing, look at cash-on-cash return or a full rental-property ROI instead.
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Educational estimate, not investment, tax or financial advice. Returns are never guaranteed and past performance does not predict the future. Confirm figures with a licensed advisor.