Real Estate
Cap Rate Calculator
Work out the capitalization rate on any income property from its net operating income and market value — the standard metric appraisers and investors use to compare deals.
Cap rate
5.64%
Net operating income
$25,400
Effective gross income
$39,900
Expense ratio
36.34%
Net operating income of $25,400 on a $450,000 property gives a cap rate of 5.64%.
Projected NOI & property value over time
Your numbers
Tax, insurance, management, maintenance, HOA — exclude debt service.
+Projection mode
Set to project cap rate forward — leave at 0 to stay in current-year mode.
The formula
Cap Rate = (Net Operating Income ÷ Property Value) × 100
Net Operating Income (NOI) is effective gross income — rent adjusted for vacancy — minus operating expenses. It excludes mortgage payments, income tax, and capital expenditures, which is what makes cap rate comparable across all-cash and financed buyers alike.
The optional projection mode holds vacancy fixed and grows NOI and property value at the constant annual rates you set, from year zero to your chosen holding period — a simplification, not a forecast.
How to read it
The capitalization rate, or cap rate, answers a specific question: if you bought this property entirely in cash, what percentage return would its operating income generate each year? It’s the metric appraisers use to back into a property’s market value from its income, and the one investors use to compare very different assets on equal terms.
Because cap rate strips out financing, it isolates the quality of the asset and its location from the specifics of any one buyer’s loan. Two investors — one paying cash, one using an 80% mortgage — will calculate the identical cap rate on the identical property, even though their actual cash returns (cash-on-cash) will differ enormously.
Cap rates move inversely with price for a given income stream: as competition pushes purchase prices up, cap rates compress. Watching cap rate trends in a specific submarket is a common way investors gauge whether that market is heating up or cooling down.
Frequently asked
What is a good cap rate?+
Typical ranges run from about 4–5% in expensive, low-risk markets (major coastal cities) to 8–10%+ in higher-risk or lower-growth markets. A lower cap rate generally means the market prices the asset as safer or higher-growth; a higher cap rate implies more perceived risk or a higher required return.
Is a higher or lower cap rate better?+
Neither is universally ’better’ — it depends on your goal. Higher cap rates usually mean more cash flow relative to price but often more risk or slower appreciation. Lower cap rates typically sit in stable, in-demand markets where investors accept less current income for lower risk and stronger long-term appreciation.
How is cap rate different from cash-on-cash return?+
Cap rate ignores financing entirely — it’s Net Operating Income divided by property value, as if you bought with all cash. Cash-on-cash return factors in your mortgage and divides annual cash flow by the actual cash you invested, so it reflects leverage. Try the cash-on-cash return calculator to see the difference on the same deal.
Does cap rate include the mortgage payment?+
No. Net Operating Income is calculated before debt service (mortgage principal and interest). That’s what makes cap rate useful for comparing properties independent of how each buyer chooses to finance them.
What's the difference between projected cap rate and cap rate on original price?+
Both start from the same projected future NOI. Projected cap rate divides it by the property's projected future value — it answers 'if I bought at that future price, what would my return be?' Cap rate on original price divides the same NOI by what you actually paid — it answers 'how is my actual investment performing?' They diverge whenever NOI and property value grow at different rates.
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Educational tool, not advice. This calculator illustrates a standard formula using the numbers you enter. It does not account for your full financial picture, taxes, or local market conditions, and it is not a recommendation to buy, sell, or hold any asset. Speak with a licensed professional before making investment decisions.