Cap Rate Calculator
Cap rate (capitalization rate) is a property’s net operating income divided by its price — the unlevered annual return you would earn if you paid all cash. Because it ignores financing, it is the cleanest way to compare two properties or to sanity-check an asking price against the market.
Cap rate: 6.5%
The formula
Cap Rate = Net Operating Income ÷ Property Value × 100
Use annual NOI (revenue minus operating expenses, before debt service) and the purchase price or current market value. The result is a percentage.
Worked example
- A property is listed at $800,000.
- It produces $52,000 of NOI per year.
- Cap rate = $52,000 ÷ $800,000 = 6.5%.
Whether 6.5% is attractive depends on the market and asset class — the power of the cap rate is comparing it against similar properties in the same submarket.
Cap rates vary widely by market and property type — stabilized residential rentals in major U.S. metros have typically traded in the ~4%–8% range, with higher cap rates generally reflecting higher perceived risk.
Frequently asked questions
- Is a higher cap rate better?
- Higher cap rate means more income per dollar of price — but the market usually prices risk in. An unusually high cap rate often signals a weaker location, deferred maintenance, or less reliable income, not a free lunch.
- What expenses go into NOI for a cap rate?
- Property taxes, insurance, property management, repairs and maintenance, utilities you pay, and a vacancy allowance. NOI excludes mortgage payments, depreciation, capital expenditures, and income taxes.
- Cap rate vs. cash-on-cash return — what’s the difference?
- Cap rate ignores financing (NOI ÷ price); cash-on-cash measures the return on the actual cash you put in after debt service. Cap rate compares properties; cash-on-cash measures your deal as financed.
Run the whole deal, not just one number
The free rental property analyzer calculates DSCR, cap rate, cash-on-cash, and cash flow together from one set of inputs — no signup required.
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