Cap Rate Calculator
Calculate the capitalization rate for any rental property using Net Operating Income (NOI) and property value — independent of financing.
Property Details
Do not include mortgage payments — cap rate is unleveraged.
Cap Rate
Enter property details to calculate cap rate.
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How this works
Cap rate (capitalization rate) is the most widely used metric in rental real estate for comparing properties apples-to-apples. The formula is simple: Cap Rate = NOI ÷ Property Price × 100, where NOI is annual rental income minus annual operating expenses (excluding mortgage payments).
Because it ignores financing, cap rate is a property metric — not an investor metric. Two buyers with different loan terms buying the same property will have the same cap rate but very different cash returns. That's why cap rate is used to value properties and compare markets, while cash-on-cash return is used to evaluate individual investment decisions.
Market cap ratescompress when prices rise faster than rents (hot markets), and expand when prices fall or rents outpace price growth. In 2024, single-family rentals in major Texas markets typically traded at 5–7% cap rates. Understanding your market's typical cap rate helps you spot underpriced assets quickly.
A common shortcut: if your expense ratio is around 40%, use NOI = Gross Income × 0.60 as a quick estimate. For a more accurate number, enter your actual expenses — taxes, insurance, management, repairs, and CapEx reserves — directly into this calculator.
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Frequently Asked Questions
Why does cap rate exclude mortgage payments?
Cap rate is an unleveraged metric — it measures the property's return independent of how you finance it. Two investors buying the same property at different loan terms would show the same cap rate but very different cash-on-cash returns.
What is a good cap rate?
It depends heavily on market and property type. In expensive coastal markets, 4–5% may be typical for multifamily. In secondary Sunbelt markets, 6–8% is common. As a rule: higher cap rates mean more income relative to price, but often also more risk or weaker appreciation potential.
How is cap rate used to value a property?
If you know the market cap rate and the property's NOI, you can estimate value: Property Value = NOI ÷ Cap Rate. A property generating $18,000 NOI in a 6% cap rate market is worth approximately $300,000. This is the foundation of commercial real estate valuation.
What should I include in operating expenses?
Include property taxes, insurance, property management, repairs/maintenance, CapEx reserves, utilities paid by owner, and vacancy allowance. Do NOT include mortgage principal or interest — these are financing costs, not operating costs.