Cap Rate Calculator
What is the capitalization rate on this investment property? Calculate cap rate from NOI and price, find the maximum you should pay for a target cap rate, or compare properties side by side. Works with any currency.
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How to Use This Calculator
Tab "Cap Rate"
Enter the annual net operating income (NOI) and the property value or purchase price. The result shows the capitalization rate as a percentage. You can also toggle the checkbox to calculate NOI from gross rental income and operating expenses instead of entering NOI directly.
Tab "Property Value"
Enter your annual NOI and target cap rate. The calculator shows the maximum price you should pay to achieve that cap rate. This is useful when evaluating whether a property is fairly priced.
Tab "Compare Properties"
Enter the value and annual NOI for 2 or 3 properties. The calculator ranks them by cap rate so you can quickly see which property offers the highest yield. Property C is optional — leave it blank to compare just two.
The Formulas
Cap Rate = Net Operating Income / Property Value × 100%
Implied property value:
Property Value = NOI / Cap Rate
Net operating income:
NOI = Gross Rental Income − Operating Expenses
Operating expenses include:
Property taxes, insurance, maintenance, management fees, vacancy allowance — but NOT mortgage payments or income taxes.
Cap rate is a financing-independent metric. It measures the property’s income yield relative to its value, regardless of how the purchase is financed.
Worked Examples
Example 1 — Residential rental: $500,000 property, $30,000 NOI
A single-family rental home is worth $500,000. After subtracting property taxes, insurance, maintenance, and management fees from gross rent, the annual NOI is $30,000.
A 6% cap rate is typical for a residential property in a stable market. The investor earns $2,500 per month before debt service and taxes.
Example 2 — Finding max price: $42,000 NOI, 8% target cap rate
An investor wants an 8% cap rate. The property generates $42,000 per year in NOI. What is the maximum they should pay?
The investor should pay no more than $525,000. Paying $550,000 would reduce the cap rate to 7.6%; paying $500,000 would raise it to 8.4%.
Example 3 — Comparing 3 properties
An investor is evaluating three properties and wants to know which offers the best yield.
Property C has the highest cap rate, but the investor should also consider location, property condition, tenant quality, and appreciation potential before deciding. Higher cap rate often correlates with higher risk.
Understanding Cap Rate
What Is Cap Rate?
The capitalization rate (cap rate) is the most widely used metric for evaluating income-producing real estate. It expresses a property’s net operating income as a percentage of its value. Think of it as the “yield” on the property, similar to a bond yield — ignoring financing.
What NOI Includes (and Excludes)
NOI includes: gross rental income minus operating expenses (property taxes, insurance, repairs, maintenance, property management fees, vacancy allowance). NOI excludes: mortgage payments (principal and interest), income taxes, and depreciation. This makes cap rate a financing-independent metric — two investors can compare properties on a level playing field regardless of how much each borrows.
Cap Rate vs. Cash-on-Cash Return
Cap rate ignores financing. Cash-on-cash return measures actual cash income relative to cash invested (down payment + closing costs). If you finance 80% of a 7% cap rate property at 6% interest, your cash-on-cash return will be higher than 7% because leverage amplifies returns. But leverage also amplifies losses if the property underperforms.
Limitations
Cap rate is a snapshot metric. It does not account for: (1) property appreciation or depreciation, (2) changes in rent or expenses over time, (3) financing costs, (4) tax benefits like depreciation deductions, (5) capital expenditures (roof replacement, HVAC, etc.). Use cap rate as a quick screening tool, then dig deeper with a full investment analysis.