Rental Cap Rate Calculator
Turn rent, vacancy and operating expenses into net operating income and a cap rate to compare rental properties fairly.
How it works
Effective gross = (rent + other) × 12 × (1 − vacancy) · NOI = effective gross − operating expenses · Cap rate = NOI ÷ price × 100
The capitalization rate is the property's unleveraged yield: net operating income divided by price, as if you paid all cash. NOI counts every dollar the property collects — rent plus ancillary income, minus a realistic vacancy allowance and all operating expenses (taxes, insurance, maintenance, management), but deliberately not the mortgage. Excluding financing is what makes cap rate comparable across properties: it measures the asset itself, not your loan. Higher cap rates signal more income per dollar of price (or more risk); lower cap rates usually mean pricier, lower-risk markets.
Worked example
A $300,000 rental brings $2,400 rent plus $50 other income monthly — $29,400 a year. A 5% vacancy allowance trims it to $27,930, and $9,000 of operating expenses leaves an NOI of $18,930. Cap rate is 18,930 ÷ 300,000 = 6.3%.
Frequently asked questions
What is a good cap rate?
It depends on the market and risk. Many investors look for 5–10%: lower cap rates (4–5%) are common in expensive, stable coastal markets, while higher ones (8%+) appear in cheaper or higher-risk areas. Compare a property against similar ones nearby, not a universal target.
Why does cap rate ignore the mortgage?
So the metric describes the property, not your financing. Two buyers with different loans would otherwise get different "returns" on the same building. To fold in your loan, use cash-on-cash return instead.
Should the vacancy allowance really be subtracted?
Yes. No rental is occupied 100% of the time — tenants turn over and units sit empty between leases. Building in a 5–8% vacancy factor keeps NOI realistic rather than assuming perfect occupancy.
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Educational estimate, not financial or real-estate advice. Actual costs, rates and returns vary by lender, market and property.