Cap Rate Calculator
Cap Rate Calculator
Reverse Calculator: Find Property Value
About Cap Rate Calculator
What Is Cap Rate?
Capitalization rate (cap rate) is the most widely used metric for evaluating real estate investment properties. It represents the ratio of a property's net operating income (NOI) to its current market value or purchase price. In simple terms, it tells you what percentage return you would earn if you bought the property with all cash. A property generating $30,000 in annual NOI with a market value of $400,000 has a cap rate of 7.5%. Cap rates allow investors to quickly compare different properties regardless of size, location, or financing structure.
The Cap Rate Formula
The formula is Cap Rate = Net Operating Income / Property Value x 100. Net Operating Income (NOI) is calculated as gross rental income minus operating expenses (property taxes, insurance, maintenance, management fees, vacancy allowance). NOI does not include mortgage payments or depreciation since cap rate is meant to evaluate the property itself independent of financing.
How to Use This Calculator
Enter the property value (or purchase price), annual gross rental income, and annual operating expenses. The calculator computes your NOI and cap rate. You can also use it in reverse: enter your desired cap rate and NOI to find what the property should be worth, helping you make informed purchase offers.
Frequently Asked Questions
What is a good cap rate?
It varies by market and property type. Generally: 4-5% in major cities (lower risk, higher appreciation), 6-8% in suburban areas, and 8-12% in smaller markets or higher-risk properties. Higher cap rates indicate higher returns but often higher risk.
Does cap rate include mortgage payments?
No. Cap rate evaluates the property on an unlevered basis (as if paid with cash). This makes it comparable across properties regardless of individual financing. Use cash-on-cash return to evaluate levered performance.
Is a higher cap rate always better?
Not necessarily. Higher cap rates often mean higher risk, less desirable locations, or older properties requiring more maintenance. Lower cap rates in premium areas may offer better appreciation potential and more stable tenants.
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