Cap Rate Calculator

Find any property’s capitalization rate in seconds, free — enter the value, the rent and the expenses and see the cap rate and net operating income (NOI) at once.

How to Use This Cap Rate Calculator

1. Enter the property value in the first box. Use the purchase price if you are buying, or the current market value if you already own the property. Dollar signs and commas are fine, so $500,000 and 500000 both work.
2. Add the gross annual rental income: the full rent for twelve months before any costs, plus any other regular income the property produces, such as parking or laundry fees. Monthly rent of $4,000 means $48,000 here.
3. Add the annual operating expenses, the running costs of the property for one year: taxes, insurance, management, maintenance, utilities you pay and similar bills. Never include the mortgage payment.
4. Set the vacancy rate, the share of the year you expect the property to sit empty between tenants. Five percent is a common planning figure; leave it blank if your rent figure already allows for empty weeks.
5. Press the big Calculate Cap Rate button. Your cap rate appears in the panel under the button, and the tool also updates live as you type, so you can test a higher rent or a lower price and press Calculate again. No sign-up, no waiting.

Why Use This Cap Rate Calculator?

• It puts every property on one scale. A $150,000 duplex and a $2,000,000 warehouse have nothing in common until you divide each NOI by its price. This cap rate calculator real estate investors rely on for a first screen does that in one step.
• It shows the NOI, not just the percentage. You see the net operating income per year and per month next to the cap rate, because the NOI is the number every other metric, from DSCR to cash flow, builds on.
• It handles vacancy honestly. Many quick estimates divide the full scheduled rent by the price and overstate the return. Here the vacancy loss comes off first, exactly the way an appraiser builds the income statement.
• It works in both directions. The same cap rate calculation prices a property you might buy and values a property you might sell: divide your NOI by the market cap rate and you hold a defensible asking price.
• It exposes weak deals fast. Change one number, the asking price, and watch the cap rate move. A seller who drops the price by $50,000 hands you a visibly better rate, and you see it before you negotiate.
• It is free, instant and private. No account, no email, no spreadsheet download. The math runs in your browser and nothing you type leaves the page.

Who Is This Cap Rate Calculator For?

First-time rental investors. You found a listing, you know the rent, and you need one honest number before you book a viewing. Run the cap rate calc here and you know whether the deal deserves a second look.

Landlords pricing a sale. You know your NOI but not your asking price. Divide it by the cap rate buyers in your market are paying, using the value table further down this page, and you start the conversation from evidence.

Commercial buyers and brokers. Strip centers, offices and warehouses trade on cap rates, not on price per door. This capitalization rate calculator lets you check a broker’s quoted rate against the property’s own T-12 numbers in seconds.

House hackers and small multifamily owners. Duplexes, triplexes and fourplexes sit between the residential and commercial worlds. The cap rate lets you compare them with single-family rentals on one scale.

Sellers, flippers and wholesalers. A flip that ends as a rental lives or dies on its exit cap rate. Price the finished property’s income before you buy the project, not after.

Students and new agents. The worked example and the formula sections below teach the full cap rate calculation with real numbers, the same method licensing courses teach.

What Is a Cap Rate in Real Estate?

The cap rate, short for capitalization rate, is the rate of return an income-producing property generates in one year, expressed as a percentage of the property’s value. It answers one clean question: for every dollar this property costs, how many cents of net income does it produce each year? A property worth $500,000 that produces $30,000 of net operating income has a cap rate of 6%, which means the income alone returns six cents per dollar of value annually.

Investors use the cap rate because it strips a deal down to the property itself. It ignores how you finance the purchase, what tax bracket you sit in and who manages the building. Two investors with completely different loans see the same cap rate on the same building, which makes it the shared language of listing sheets, broker calls and investment committees across residential and commercial real estate.

The Cap Rate Definition in Plain Words

Picture the property as a machine that produces income. The cap rate is the machine’s annual output divided by its price tag. Buy a $100,000 apartment that nets $10,000 a year after expenses and the machine runs at a 10% cap rate: the income repays the full price in ten years of operation, before any price growth. Every cap rate carries that same payback meaning, which is why experienced investors can judge a listing from a single percentage.

Cap Rate, Gross Yield and Net Yield

The gross yield divides the full scheduled rent by the price and always flatters the property, because it pretends expenses and empty weeks do not exist. The cap rate is the net yield: it divides the income left after vacancy and operating expenses by the value. On the worked example on this page, the gross yield is 9.60% while the true cap rate is 6.00%. Quote the net figure whenever you compare properties, and treat any advertised gross yield as marketing until you run the full calculation.

The Cap Rate Formula

One division sits at the heart of every cap rate calculation, and two rearrangements of the same formula do the rest of the work investors need.

The Three Forms of the Formula

Cap rate = Net operating income / Property value. An NOI of $30,000 on a $500,000 property gives 30,000 / 500,000 = 0.06, a 6% cap rate. Property value = Net operating income / Cap rate. The same $30,000 of NOI at a 5% market cap rate supports a value of $600,000. Net operating income = Property value x Cap rate. A $500,000 property bought at a 6% cap rate must produce $30,000 of NOI, so you can work backwards from a target rate to the rent the property has to achieve. Learn these three forms once and you can answer almost any screening question on a deal without opening a spreadsheet.

How to Find Net Operating Income (NOI)

NOI is the income a property keeps after the costs of running it, before any loan payment or income tax. Build it in three lines. Start with the gross potential income: every unit rented for twelve months at market rent, plus other regular income. Subtract the vacancy loss, the rent you realistically lose to empty weeks and turnover, and you hold the effective gross income. Subtract the operating expenses and you hold the NOI. On this page’s example: $48,000 of gross income, minus a $2,400 vacancy loss at 5%, gives $45,600 of effective income; minus $15,600 of operating expenses gives the $30,000 NOI.

What Counts as an Operating Expense, and What Does Not

Expense classification decides whether a cap rate means anything, because two investors who classify differently produce two different rates on the same building. Count the costs of operating the property: property taxes, landlord insurance, property management fees (commonly 4% to 12% of collected rent), repairs and routine maintenance, utilities the owner pays, HOA dues, landscaping, snow removal, pest control, and legal and accounting fees tied to the property. Exclude the financing and ownership items: mortgage principal and interest, income tax, depreciation and amortization, and major capital improvements such as a new roof or a new HVAC system. Many investors set aside a replacement reserve for those big items when they judge cash flow, but the standard NOI, and therefore the standard cap rate, leaves capital expenditure out.

How to Calculate Cap Rate Step by Step

Follow the same five steps this calculator runs, and you can work any listing by hand.

1. Fix the value. Write down the purchase price or the current market value: $500,000.
2. Total the gross income. Twelve months of rent plus other income: $4,000 a month gives $48,000 a year.
3. Take off the vacancy loss. At a 5% vacancy rate, you lose $2,400, which leaves an effective income of $45,600.
4. Take off the operating expenses. Taxes, insurance, management and maintenance total $15,600, which leaves an NOI of $30,000.
5. Divide the NOI by the value. $30,000 / $500,000 = 0.06, so the cap rate is 6.00%, with a monthly NOI of $2,500 and a simple income payback of about 16.7 years.

Type those same four numbers into the tool at the top of this page and it returns the identical result, which is the fastest way to check any hand calculation.

Cap Rate Examples: Real Properties, Worked in Full

Tap any row and that property loads into the calculator at the top of this page, so you can change the price, the rent or the expenses and watch the cap rate move.

Read the table the way an investor reads a market. The budget rental in a higher-yield area posts the richest cap rate on the smallest price, while the large apartment building accepts a thinner rate because its income is steadier and its management is professional. Price alone never tells you which deal is better; the cap rate starts that argument properly.

What Is a Good Cap Rate?

No universal number exists, because a good cap rate is always relative to the market, the property type and the risk you accept. Most investors screen inside a 4% to 10% band. Rates under 4% appear mainly in the most expensive coastal markets and on brand-new buildings, where buyers pay for stability and expected appreciation rather than current income. Rates above 10% usually signal a problem the price is compensating for: a declining area, a tired building, short leases or heavy management demands.

Typical Cap Rate Ranges by Property Type

Use these screening ranges as a starting map, then replace them with the rates local brokers and recent comparable sales show for your own market. They describe stabilized properties in typical US markets, not distressed assets.

A Higher Cap Rate Means Higher Return and Higher Risk

The cap rate is a price tag on risk. Investors accept a 5% return from a new apartment building in a growing suburb because the income feels almost certain. They demand 9% from an older retail unit in a shrinking town because the next vacancy might last a year. When a listing shows a cap rate far above its market, do not celebrate until you find the reason: the seller has usually priced in a problem you now own. When it shows a rate far below its market, the seller is asking you to pay today for growth that has not happened yet.

Property Class and Market Tier

Class A properties, the newest buildings in the best locations, trade at the lowest cap rates in primary markets such as New York, San Francisco and Seattle. Class B properties, older but well-kept buildings in solid areas, trade a point or so higher. Class C properties in secondary and tertiary markets trade higher again, because their income carries the most uncertainty. This is why you never compare a cap rate across classes or cities: a 7% rate that looks generous in one market can be a warning sign in another.

How to Figure Cap Rate on Commercial Property

Learning how to figure cap rate on commercial property starts with the same formula, but commercial deals punish sloppy income figures. A house has one rent; a commercial building has a rent roll, and every line of it matters.

• Start from the T-12. Use the trailing twelve months of actual collected income and real expenses from the seller’s operating statement, not the pro forma the listing advertises. Pro formas assume full occupancy at future rents; the T-12 shows what the building truly did.
• Read the leases before the numbers. Under a triple net (NNN) lease, tenants reimburse taxes, insurance and maintenance, so the landlord’s expenses stay low and the NOI stays high for the same rent. Under a gross lease the landlord pays those costs. Two buildings with identical rent can carry very different cap rates purely because of lease structure.
• Use in-place rent for occupied space and market rent for vacant space. Then apply the submarket’s real vacancy allowance, which runs higher for office and retail than for multifamily.
• Watch the lease expiry schedule. A building whose biggest tenant leaves in eighteen months does not deserve the same cap rate as one with seven years of term left, even at identical NOI today.
• Value it backwards as a cross-check. Divide the verified NOI by the market cap rate local brokers quote for that asset class. If the asking price sits far above that value, the seller is pricing in rent growth or redevelopment, and you should pay for it only if you believe the plan.

Using a Cap Rate Calculator in Excel

Many investors search for a cap rate calculator excel template because they compare several properties at once, and a spreadsheet does that job well. Build the sheet the same way this page is built. Put the property value in cell B1, the gross annual income in B2, the vacancy rate as a decimal in B3, and the annual operating expenses in B4. In B5, calculate the net operating income with the formula =B2*(1-B3)-B4. In B6, calculate the cap rate with =B5/B1 and format that cell as a percentage. Copy the two columns across for each new property and the sheet ranks your deals by cap rate in one glance. The online tool above still wins for a single property, since it needs no file and no formatting, but the Excel version earns its place the moment your shortlist grows past three or four deals.

How a Change in NOI or Cap Rate Changes the Property Value

The cap rate formula creates a lever: small changes in income or in the market rate move the value a long way, because the value is the NOI divided by a small percentage.

When the NOI Rises, the Value Rises With It

Suppose your property produces $30,000 of NOI and the market cap rate is 6%, so the property is worth $500,000. You raise rents and cut waste until the NOI reaches $33,000. At the same 6% rate the value becomes $550,000. Every extra $1 of NOI added $16.67 of value, because $1 / 0.06 = $16.67. This multiplier, the inverse of the cap rate, is why experienced landlords obsess over small expense savings and modest rent increases: the income gain is real, and the value gain is the income gain multiplied.

When Interest Rates Rise, Cap Rates Tend to Rise and Values Fall

Cap rates do not move in a vacuum. When the Federal Reserve raises interest rates, bonds and other interest-linked investments pay more, so property investors demand more too, and market cap rates drift up. Hold the NOI at $30,000 and watch the value as the rate moves:

The building did not change at all; only the return investors require changed, and the value swung by hundreds of thousands of dollars. The reverse works in falling-rate periods, when compressing cap rates lift values even with flat rents. That is also why cap rates collapsed during the cheap-money years before the 2008 financial crisis and why they reset higher when rates normalised: the income stayed similar, but the price investors would pay for each dollar of it moved.

Cap Rate vs Cash-on-Cash Return, ROI and Gross Rent Multiplier

The cap rate is the most quoted ratio in property evaluation, but it is one instrument on a panel. Each ratio below answers a different question, and investors use them together rather than choosing one winner.

Notice the dividing line: the cap rate and the GRM describe the property, while cash-on-cash and total ROI describe your financed position in it. Lenders live on the DSCR line of that table, and you can run your loan numbers in our DSCR Loan Calculator and our Hard Money Loan Calculator once the cap rate tells you the deal deserves a closer look.

The 1% Rule and the 50% Rule: Two Quick Screens

Before you run a full cap rate calc, two famous shortcuts can reject a hopeless listing in ten seconds. The 1% rule says the monthly rent should reach at least 1% of the total purchase price after repairs: a $200,000 property should rent for $2,000 a month or more. The 50% rule assumes operating expenses will consume about half of the gross rent over time, so it estimates NOI at roughly 50% of gross income before debt service. Both rules are deliberately crude. They use no local tax bill, no real insurance quote and no actual vacancy history. Use them to sort a long list quickly, then run the surviving two or three properties through the full calculator at the top of this page, where your own real numbers replace the assumptions.

Selling a Property With the Capitalization Rate

Owners use the same formula in reverse. Say your building produces a monthly operating income of $2,500, which is $30,000 a year, and commercial agents tell you that similar properties in your neighborhood trade at a 6% cap rate. Divide the NOI by the rate: $30,000 / 0.06 = $500,000. That figure is your evidence-based starting price. Treat it as the anchor of the negotiation rather than the final word: a new roof, a long lease with a strong tenant or a development angle can justify more, while deferred maintenance or a lease that expires next year argues for less. The calculation takes ten seconds and replaces guesswork with the market’s own pricing language.

Limitations of the Cap Rate

• It ignores financing. That neutrality helps comparisons and hurts personal decisions. A property at a 6% cap rate can still lose cash every month if the loan is large and expensive, which is why you follow up with cash-on-cash and DSCR.
• It is a snapshot, not a forecast. The formula uses one year of income. It says nothing about rent growth, a lease expiring, a tax reassessment or a roof that needs replacing in year two.
• It does not fit every asset. Short-term and seasonal rentals, development land, and fix-and-flip projects produce irregular or no rental income, so a cap rate describes them badly. The GRM or a direct cash-flow projection serves those deals better.
• It inherits the quality of its inputs. An NOI built on advertised rents and missing expenses produces a fantasy rate. Verify the T-12, the tax bill and the insurance cost before you trust the percentage.
• It says nothing about appreciation. Some of the best long-term deals carry modest cap rates in markets where values compound. The cap rate measures income only, and income is only part of total return.

Tips for an Accurate Cap Rate Calculation

• Use collected rent, not scheduled rent. If a tenant pays late or holds a concession, the income statement should show what actually arrived.
• Include a management fee even if you self-manage. Your time has a cost, and the next buyer will pay a manager. A rate calculated with free management flatters the deal and breaks the comparison with managed properties.
• Normalise one-off costs. A single legal fight or a storm repair in the T-12 distorts the NOI. Adjust obvious one-time items and note that you did.
• Check the tax bill against the sale price. In many states a sale triggers a reassessment. The buyer’s real tax expense can sit well above the seller’s current bill, and the honest cap rate uses the buyer’s figure.
• Compare only like with like. Same city, same property type, same class, similar lease structure. A cap rate means the most inside its own peer group.
• Recalculate after every price move. Negotiation changes the denominator. A $25,000 price cut on the worked example lifts the cap rate from 6.00% to about 6.32%, which can be the difference between passing and buying.

Frequently Asked Questions

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