EachCalculatorCap Rate Calculator
Calculate the capitalization rate (cap rate) of an investment property — a standard way real estate investors compare a property's return regardless of financing.
Net Operating Income
$20,000.00
Cap Rate
8%
How It Works
Net operating income (NOI)
NOI = annual gross rental income − annual operating expenses (property taxes, insurance, maintenance, management fees — but not mortgage payments).
Cap rate
Cap rate = NOI ÷ property value (or purchase price), expressed as a percentage. A higher cap rate generally means a higher potential return, but often reflects higher risk.
Example
A property generating $30,000 in annual rent with $10,000 in operating expenses, valued at $250,000, has an NOI of $20,000 and a cap rate of 8%.
Common Mistakes
- Including mortgage payments in operating expenses — cap rate is calculated before financing costs, so it can be compared across deals regardless of how they're financed.
- Using an unrealistically low vacancy or maintenance estimate, which inflates NOI and makes a property look better than it will actually perform.
Frequently Asked Questions
- What's a 'good' cap rate?
- It depends heavily on the market and property type — cap rates in the 4-10% range are common, with lower cap rates typically found in safer, higher-demand markets and higher cap rates in higher-risk or higher-yield markets.
- How is cap rate different from rental yield?
- They use very similar math, but cap rate is the standard term in commercial and investment real estate, while rental yield is more commonly used for residential buy-to-let properties.