Use this cap rate calculator to find the capitalization rate of a rental property. Enter the price, monthly rent, vacancy rate and yearly operating expenses to see net operating income (NOI) and cap rate in one step.
What is cap rate?
The capitalization rate is the yearly net operating income a property produces, as a percentage of its price or value. It shows the return you would earn if you bought the property with cash, which makes it useful for comparing properties regardless of how each one is financed.
Cap rate formula
Cap rate = net operating income ÷ property value × 100
Net operating income = rental income − vacancy loss − operating expenses
Operating expenses include property taxes, insurance, repairs and maintenance, property management, HOA fees and landlord-paid utilities. They do not include mortgage payments, depreciation or income tax.
Worked example
A property costs $300,000 and rents for $2,500 a month, or $30,000 a year. With 5% vacancy, effective income is $28,500. Subtract $9,000 of operating expenses and the NOI is $19,500. The cap rate is $19,500 ÷ $300,000 = 6.5%.
Frequently asked questions
What is a good cap rate?
There is no single good number. Cap rates vary by city, neighborhood, property type and interest rates. A higher cap rate means more income for the price, but it often comes with more risk, such as an older building or a weaker rental market. Compare a property with similar ones in the same area.
Why doesn’t cap rate include the mortgage?
Cap rate measures the property itself, not your financing. To see the return on the cash you actually put in after mortgage payments, use the cash-on-cash return calculator.
What is the gross rent multiplier?
It is the price divided by gross yearly rent. A lower number means you pay less for each dollar of rent, but unlike cap rate it ignores vacancy and expenses.
For education only, not financial advice.