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Cap Rate Calculator

Calculate the capitalization rate of a rental property from its net operating income and purchase price.

calculatorPublished 2026/06/01Last verified 2026/06/07

Cap Rate Calculator

Cap rate = annual net operating income ÷ purchase price × 100.

Cap rate

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What is the cap rate?

The capitalization rate (cap rate) measures the unleveraged annual return on a real estate investment. It expresses a property's net operating income as a percentage of its price, letting you compare deals on a like-for-like basis regardless of financing.

The formula

Cap rate = Net Operating Income (NOI) / Purchase price × 100

Net operating income is the annual income a property generates after operating expenses (property taxes, insurance, maintenance, management, vacancy) but before mortgage payments, depreciation, and income tax.

How to use this calculator

  1. Enter the property's purchase price.
  2. Enter the property's annual net operating income.
  3. The cap rate updates instantly.

For example, a property bought for $1,000,000 with $50,000 in annual NOI has a cap rate of 5.00%.

How to read the result

A higher cap rate generally signals higher return — and often higher risk or a less desirable location. A lower cap rate typically reflects a premium, lower-risk asset. "Good" cap rates are market- and asset-specific, so always compare against similar properties in the same area.

What the cap rate leaves out

Cap rate ignores financing (mortgage terms), appreciation, and tax effects. Pair it with cash-on-cash return and a full underwriting model before committing to a deal.

FAQs

What is a good cap rate for rental property?
There is no universal "good" cap rate — it depends on the market, asset class, and risk profile. Many residential rental investors look for 4–10%, but a premium property in a prime location may trade at a lower cap rate while a higher-risk asset commands a higher one. Always compare against similar properties in the same area.
What is net operating income (NOI)?
NOI is a property's annual income after operating expenses — property taxes, insurance, maintenance, management, and vacancy — but before mortgage payments, depreciation, and income tax. It is the numerator in the cap rate formula.
Does cap rate include the mortgage?
No. Cap rate is an unleveraged metric: it deliberately excludes financing so you can compare properties independently of how they are funded. To factor in a mortgage, use cash-on-cash return instead.
How is cap rate different from cash-on-cash return?
Cap rate measures return on the full purchase price with no financing. Cash-on-cash return measures the annual pre-tax cash flow relative to the actual cash you invested (down payment plus closing costs), so it reflects the effect of leverage.
Can the cap rate be negative?
Yes. If a property's operating expenses exceed its income, NOI is negative and the cap rate is negative too — a signal the property is losing money at an operating level before any financing.

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