Cap Rate Calculator
Estimate the capitalization rate of a rental or investment property using property value and net operating income.
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Calculator results are estimates for educational purposes. Financing eligibility, property availability and provider terms vary.
How to calculate cap rate
Cap rate, or capitalization rate, compares a property's annual net operating income with its purchase price or market value. Divide annual NOI by property value and multiply by 100 to express the result as a percentage.
Cap rate vs. cash flow
Cap rate evaluates property-level income before financing costs, while cash flow accounts for debt service and other financing obligations. Investors often review both metrics because two properties with similar cap rates can produce very different cash flow depending on leverage and loan terms.
What is a good cap rate?
There is no universal target. Cap rates vary by property type, location, condition, tenant quality and market risk. Compare similar properties in the same market and use realistic income, vacancy and expense assumptions rather than relying on a single percentage threshold.
Cap rate calculator FAQ
How do you calculate cap rate on a rental property?
Divide annual net operating income by the property's purchase price or current market value, then multiply by 100 to express the result as a percentage.
What expenses should be included when calculating cap rate?
Use operating expenses such as property taxes, insurance, maintenance, management, utilities paid by the owner and vacancy assumptions. Mortgage principal and interest are generally excluded from NOI.
Is a higher cap rate always better?
Not necessarily. A higher cap rate may reflect stronger income relative to price, but it can also reflect higher property, tenant or market risk. Compare similar properties in the same market and asset class.
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