Cap Rate Calculator
NOI and cap rate for any rental — or the price a property is worth at your target cap
5–8% is a common planning figure
Taxes, insurance, maintenance, management — NOT the mortgage
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Quick summary
Cap rate is net operating income divided by property value — the property's unleveraged yield. NOI is rent minus vacancy minus operating expenses (taxes, insurance, maintenance, management) but never the mortgage: cap rate deliberately measures the property, not your financing. A $300,000 property renting at $2,200/month with 5% vacancy and $8,000 expenses produces $17,080 NOI — a 5.7% cap. Value mode inverts the formula: NOI ÷ target cap = price.
Reviewed by Simple Calculators TeamLast reviewed
How to use this calculator
- Enter the inputs requested by the calculator.
- Choose the units or options that match your situation and review the assumptions.
- Run or update the calculation to see the result.
- Review the result, breakdown, and formulas shown on the page.
- Check the inputs, units, dates, and limitations before saving or sharing the result.
Frequently asked questions
What is a good cap rate?
Context is everything: 4–5% typifies low-risk properties in strong coastal markets, 6–8% is common in mid-market cities, and 9%+ usually signals higher risk (declining area, deferred maintenance, or rougher tenant profile). A 'high' cap rate is compensation for risk, not free money.
Why isn't the mortgage included?
Cap rate is designed to compare properties independent of how each buyer finances them. Your loan affects YOUR cash-on-cash return, not the property's operating yield. Two investors with different loans see the same cap rate but very different cash flows — that's the point.
What expenses go into NOI?
Property taxes, insurance, repairs and maintenance, property management, utilities you pay, HOA, and a vacancy allowance. Excluded: mortgage payments, depreciation, and capital improvements. A common quick screen is the 50% rule — expenses (excluding mortgage) often approximate half of rent on older properties.
How do investors use cap rate to negotiate?
In income-property markets, price is often quoted as a cap rate on actual or pro-forma NOI. If comparable properties trade at a 6% cap and the seller's real NOI is $17,000, the supportable price is about $283,000 — the value mode computes exactly this. Scrutinize seller pro-formas: optimistic vacancy and expense assumptions inflate NOI and therefore price.
Key terms
- NOI
- Net operating income — effective rental income minus operating expenses, before any financing.
- Cap Rate
- NOI ÷ property value — the unleveraged annual yield of the property itself.
- Pro-Forma
- A seller's projected (often optimistic) income statement — verify against actuals.
- Cash-on-Cash Return
- Annual cash flow ÷ cash invested — the leveraged cousin of cap rate; see our property investment calculator.
Methodology, sources & limitations
This page shows the formula, assumptions, and limitations used for this estimate. Rates, thresholds, and other time-sensitive inputs can change, so verify them against the relevant official source before relying on a result.
For our review approach and the primary sources we consult, see the methodology and source policy. If you spot an outdated figure or formula, please contact us with a correction.