Cap Rate Calculator
Calculate the capitalization rate for any rental property instantly. Enter your property value and rental income — results update in real time.
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Exclude mortgage payments from expenses — cap rate is financing-independent.
What is Cap Rate?
Capitalization rate (cap rate) is the most widely used metric in real estate for evaluating rental property returns. It measures how much annual income a property generates relative to its value — without factoring in how you finance it.
Because cap rate excludes mortgage payments, it lets you compare any two properties on equal footing regardless of their financing structure. A property with a 7% cap rate generates $7 in annual net income for every $100 of its market value.
Formula
Cap Rate = NOI ÷ Property Value
NOI = (Monthly Rent × Occupancy Rate × 12) − Annual Operating Expenses
Net Operating Income (NOI) is your effective gross rent (after vacancy) minus all operating expenses — things like property management, maintenance, insurance, and taxes. Crucially, it does not include mortgage payments.
How to Interpret Your Cap Rate
Cap rates vary significantly by market type, property class, and risk profile. Use this as a general guide — always compare against local comps.
Low — expensive market
Common in gateway cities like NYC, San Francisco, Los Angeles
Moderate — typical
Standard range for most suburban and secondary markets
Good — strong yield
Secondary markets, value-add opportunities, growth areas
High — verify risk
Rural markets or distressed assets — higher yield often means higher risk
Frequently Asked Questions
What is a good cap rate for a rental property?+
Most investors target 5–8%. Below 4% is typical in expensive gateway markets like New York or San Francisco. Above 8% can signal a higher-risk location or distressed asset. The right cap rate depends on your market, strategy, and risk tolerance — there is no universal 'good' number.
Does cap rate include the mortgage?+
No — cap rate is deliberately mortgage-independent. It measures a property's income potential relative to its value, regardless of how you finance it. That's what makes it so useful for comparing properties across different financing structures or ownership scenarios.
What's the difference between cap rate and cash-on-cash return?+
Cap rate measures a property's unlevered return (ignoring debt). Cash-on-cash return measures the return on your actual cash invested, including the effect of your mortgage. A property with a 6% cap rate might yield a 10%+ cash-on-cash return if you finance it well — leverage amplifies both gains and losses.
What operating expenses should I include?+
Include property management fees, maintenance and repairs, insurance, property taxes, HOA fees (if applicable), and a vacancy allowance. Do NOT include mortgage payments — those are financing costs, not operating expenses, and cap rate specifically excludes them.
How is cap rate used to value a property?+
Investors use cap rate to quickly estimate a property's value: Value = NOI ÷ Cap Rate. If similar properties in a market trade at a 6% cap rate and your target property generates $24,000 NOI, its implied value is $400,000. This is how commercial real estate appraisers think about valuation.