Cap Rate Calculator
Calculate cap rate with our free Cap rate Calculator. Compare rates, see projections, and make informed financial decisions.
Formula
Cap Rate = NOI / Property Price × 100
Where NOI = Net Operating Income (Annual Rental Income minus Annual Operating Expenses), and Property Price is the purchase price or current market value. The result is expressed as a percentage. A higher cap rate indicates a higher potential return on investment relative to the property's price.
Worked Examples
Example 1: Single-Family Rental Property
Problem: A property costs $250,000, generates $2,000/month in rent ($24,000/year), and has $6,000 in annual operating expenses. What is the cap rate?
Solution: NOI = $24,000 - $6,000 = $18,000\nCap Rate = $18,000 / $250,000 = 0.072 = 7.2%\nGross Yield = $24,000 / $250,000 = 9.6%
Result: Cap Rate: 7.2% | NOI: $18,000 | Gross Yield: 9.6%
Example 2: Multi-Unit Apartment Building
Problem: A 4-unit building costs $500,000, generates $4,800/month total rent ($57,600/year), and has $18,000 in annual expenses. What is the cap rate?
Solution: NOI = $57,600 - $18,000 = $39,600\nCap Rate = $39,600 / $500,000 = 0.0792 = 7.92%\nGross Yield = $57,600 / $500,000 = 11.52%
Result: Cap Rate: 7.92% | NOI: $39,600 | Gross Yield: 11.52%
Frequently Asked Questions
What is a cap rate in real estate?
The capitalization rate (cap rate) is the ratio of a property's Net Operating Income (NOI) to its purchase price or current market value. It measures the expected rate of return on a real estate investment, assuming you purchased the property with all cash (no mortgage). A higher cap rate generally indicates higher potential returns but often comes with higher risk. Cap rates typically range from 4-10% depending on property type, location, and market conditions.
What is a good cap rate for investment property?
A 'good' cap rate depends on the market and property type. In prime urban markets, cap rates of 4-6% are common. In suburban or secondary markets, 6-8% is typical. In rural or higher-risk areas, 8-12% may be expected. Class A properties in major cities might have cap rates as low as 3-4%, while value-add properties in emerging markets might exceed 10%. Always compare cap rates within the same market and property type for meaningful analysis.
How does cap rate differ from cash-on-cash return?
Cap rate measures the property's return regardless of financing — it assumes an all-cash purchase. Cash-on-cash return measures the actual return on the cash you invested, including the effects of leverage (mortgage). If you buy a $300,000 property with $60,000 down, your cash-on-cash return is based on that $60,000, not $300,000. With favorable financing, cash-on-cash return can be significantly higher than cap rate. In Cap Rate Calculator, cash-on-cash assumes all-cash purchase, making it equal to cap rate.
What expenses should I include in a cap rate calculation?
Include all recurring operating expenses: property taxes, property insurance, property management fees (typically 8-12% of rent), maintenance and repairs (budget 1-2% of property value annually), vacancy allowance (typically 5-10% of gross rent), utilities paid by the landlord, landscaping, HOA fees, and pest control. Do NOT include mortgage payments, capital improvements, depreciation, or income taxes. Underestimating expenses is the most common mistake in cap rate calculations.
Is my data stored or sent to a server?
No. All calculations run entirely in your browser using JavaScript. No data you enter is ever transmitted to any server or stored anywhere. Your inputs remain completely private.
How do I interpret the result?
Results are displayed with a label and unit to help you understand the output. Many calculators include a short explanation or classification below the result (for example, a BMI category or risk level). Refer to the worked examples section on this page for real-world context.