Cap Rate Calculator
Find the capitalization rate on a rental or commercial property. Enter NOI directly, or build it from gross rent, operating expenses and vacancy. You can also reverse solve for the property value at a target cap rate, or the NOI you would need, and see GRM, monthly income and payback years.
Formula
Worked example
A property nets $48,000 in NOI and is valued at $750,000: cap rate = 48,000 ÷ 750,000 = 0.064 = 6.4%. To buy that NOI at a 6.5% target, you would pay 48,000 ÷ 0.065 = about $738,000.
What the capitalization rate measures
The capitalization rate, or cap rate, expresses a property annual net operating income as a percentage of its value or purchase price. It answers a simple question: if you bought this property outright with cash, what unleveraged annual return would the income produce? Because it strips out financing, the cap rate lets investors compare very different properties, a duplex versus an office building, on the same yield basis.
Building NOI from rent, vacancy and expenses
If you do not already know the net operating income, switch the income input to build mode. Start with gross annual rental income at full occupancy, then subtract a vacancy and credit loss allowance (often 5 to 10%) to get effective gross income. From that, subtract operating expenses, either as a percentage of effective income or as a fixed annual amount. Operating expenses cover property taxes, insurance, repairs and maintenance, property management and reserves, but they exclude mortgage principal and interest, depreciation, income taxes and capital expenditures. Getting NOI right matters: an inflated income figure or a missing expense line will quietly overstate the cap rate and make a deal look better than it is.
Reverse solving for value or required NOI
The same formula rearranges two useful ways. To find the most you should pay, set a target cap rate from recent comparable sales and divide the NOI by it: value = NOI ÷ cap rate. To find the income a property must produce to justify its price at your target rate, multiply: NOI = value × cap rate. Both modes are built in, so you can move between asking price, income and yield without re-doing the arithmetic. The gross rent multiplier (price divided by gross rent) is shown alongside as a quick second check.
Reading cap rates in context
There is no universally good cap rate. Prime properties in expensive, stable cities often trade at 3 to 5%, while higher-risk assets or weaker markets can exceed 8 to 10%. A high cap rate is not automatically a bargain, it frequently reflects vacancy risk, deferred maintenance, or a declining area. Always benchmark a property against recent comparable sales in the same submarket and asset class rather than chasing the biggest number.
Typical cap rate ranges by property profile
| Property profile | Typical cap rate | Risk level |
|---|---|---|
| Prime urban, high-demand market | 3% to 5% | Low |
| Stable suburban residential | 5% to 7% | Moderate |
| Secondary market / older asset | 7% to 9% | Moderate |
| High-vacancy or distressed | 10%+ | High |
Illustrative ranges only, actual cap rates vary by market, asset class, and economic cycle.
Frequently asked questions
What is a good cap rate for a rental property?
It depends entirely on the market. Many investors target 5 to 8% for residential rentals, but prime city properties may sit below 5% while riskier assets exceed 10%. Compare against recent comparable sales in the same area rather than a fixed target.
How do I calculate NOI if I only know rent and expenses?
Switch the income input to build mode. Enter gross annual rent, subtract a vacancy and credit loss allowance to get effective income, then subtract operating expenses (as a percent of income or a fixed dollar amount). The result is your net operating income, which the calculator then divides by the property value.
How do I find the price to pay for a target cap rate?
Set the mode to property value, enter the NOI and your target cap rate, and the calculator divides NOI by the rate to give the implied value. For example, $48,000 of NOI at a 6.5% target implies a price of about $738,000. Treat that as a ceiling, paying more lowers your yield.
Does cap rate include the mortgage?
No. Cap rate is deliberately unleveraged, it uses net operating income before any mortgage principal or interest. This lets you compare properties independently of how each one is financed. Cash-on-cash return is the leveraged measure to pair with it.
Is a higher cap rate always better?
Not necessarily. A higher cap rate means more income per dollar of value, but it usually comes with more risk: vacancy, deferred maintenance, or a weaker market. A low cap rate can reflect a safer, more liquid asset that is easier to sell.