Real Estate

Cap Rate Calculator

Calculate the capitalization rate for a rental property.

Enter a property's net operating income and current market value to calculate its capitalization (cap) rate — a key metric for comparing rental property investments.

Rental income minus operating expenses (excluding mortgage payments)Enter a valid NOI.
Enter a valid property value.

Capitalization Rate

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How to Use This Tool

  1. Calculate your property's Net Operating Income (annual rental income minus operating expenses, excluding mortgage payments).
  2. Enter the property's current market value or purchase price.
  3. Click Calculate for the cap rate.

The Cap Rate Formula

Cap Rate = Net Operating Income ÷ Property Value × 100

What NOI Includes (and Excludes)

Net Operating Income includes rental income minus operating expenses like property taxes, insurance, maintenance, and property management fees — but excludes mortgage payments, since cap rate is meant to measure the property's return independent of how it's financed.

Why Cap Rate Matters

Cap rate allows investors to quickly compare the relative value and risk profile of different rental properties, independent of financing structure. Generally, higher cap rates suggest higher potential returns but often correspond to higher risk (less desirable locations, older properties, or less stable tenant profiles) — while lower cap rates often reflect more stable, desirable properties.

Typical Cap Rate Ranges

"Good" cap rates vary enormously by market and property type — properties in strong, low-risk markets might see cap rates of 4-6%, while higher-risk markets or property types might see 8-10%+. There's no universal benchmark; compare within similar markets and property types.

Frequently Asked Questions

Does cap rate account for mortgage financing?

No, cap rate deliberately excludes mortgage payments, measuring the property's return independent of how it's financed — this makes it useful for comparing properties regardless of each investor's specific financing terms.

What is a good cap rate?

This varies significantly by market and property type — there's no universal benchmark. Compare cap rates within similar markets and property types, keeping in mind that higher cap rates often correlate with higher risk.

This calculator is provided for general informational and estimation purposes only. Results should not be treated as professional financial, tax, legal, medical, or engineering advice. Always verify critical calculations with a qualified professional or official source before making decisions.