Cap Rate Calculator
Compute a property's capitalization rate from its net operating income and value, or solve for value or NOI. Operating expenses are separated from financing, so the result reflects the property's unleveraged return.
Written by the CalcBundle Research & Editorial Team · Reviewed by the Quality Review Team · Transparent formulas · results are estimates, not advice. · Updated
Cap rate
Enter a property value greater than zero.
What a cap rate calculator does
The capitalization rate is the single most important number in income-property investing. It measures the return a property produces on its own — before any mortgage — and it is the common language investors use both to compare buildings and to price them. A cap rate calculator does three jobs from the same relationship: it finds the cap rate from income and value, it values a property from its income and a market cap rate, and it solves for the income a target cap rate and price imply. Because it strips out financing, it lets you compare a cash buyer's deal and a heavily-mortgaged one on identical terms.
Building NOI, then the cap rate
- Effective gross income = gross rent × (1 − vacancy)
- NOI = effective gross income − operating expenses
- Cap rate = NOI ÷ property value × 100
- Value = NOI ÷ cap rate · NOI = value × cap rate
Net operating income is the engine of the whole calculation, and its defining feature is what it excludes: mortgage payments, depreciation and capital improvements never touch NOI. That discipline is exactly why cap rate is comparable across properties — everyone computes it the same way regardless of how they paid.
Worked example
A small apartment building rents for $120,000 a year. Allow 5% for vacancy and the effective gross income is $114,000; subtract $44,000 of operating expenses and NOI is $70,000. If the asking price is $1,000,000, the cap rate is $70,000 ÷ $1,000,000 = 7.0%. Flip the calculation: if buildings like it trade at a 6% cap rate, the same $70,000 NOI implies a value near $1,167,000 — so at $1,000,000 the property may be priced attractively relative to the market.
Reading the cap rate
Think of cap rate as price and risk combined. High cap rates reward you with more income per dollar but usually signal weaker locations, older buildings or thinner demand; low cap rates cost more per dollar of income but attach to safer, higher-growth assets. Because cap rate and value move inversely, a rise in market cap rates lowers what your NOI is worth even if the rent never changes — a crucial point when interest rates shift.
Cap rate vs the other return metrics
Cap rate describes the property; it says nothing about your financing. To bring in the mortgage and your actual cash, use the cash-on-cash return calculator; to confirm the income covers the loan a lender will require, use the DSCR calculator; and for the full life-of-hold return including appreciation and sale, run the rental property ROI calculator.
Frequently asked questions
What is a cap rate?
The capitalization rate is a property's net operating income (NOI) divided by its value or price, expressed as a percentage. It estimates the unleveraged annual return on the property itself, independent of how it is financed.
What is a good cap rate?
There is no universal number. Lower cap rates (4–6%) are common in prime, low-risk markets; higher cap rates (7–10%+) usually signal higher risk or lower growth. Compare within the same market and asset class.
Does cap rate include the mortgage?
No. NOI is calculated before financing, so cap rate excludes mortgage payments entirely. To reflect financing, use cash-on-cash return or rental property ROI instead.
How do I estimate property value from cap rate?
Switch to value mode and enter NOI and a market cap rate: value = NOI ÷ cap rate. A property with $70,000 NOI at a 7% cap rate is worth about $1,000,000. This income approach is how commercial real estate is priced, so knowing the prevailing cap rate lets you value a building from its income alone.
Do higher or lower cap rates mean a better deal?
It depends on what you value. A higher cap rate means more income per dollar of price — attractive for cash flow — but it usually comes with more risk, weaker locations or slower growth. A lower cap rate means you are paying more for each dollar of income, typically for a safer, higher-quality asset. Cap rate is a measure of price and risk, not a simple good-or-bad score.
What belongs in operating expenses for NOI?
Everything required to run the property except financing and capital items: property tax, insurance, management, repairs and maintenance, utilities you pay, and a vacancy allowance. NOI deliberately excludes mortgage payments, depreciation and one-off capital improvements, which keeps cap rate comparable across differently-financed buildings.
Why do cap rates move with interest rates?
When borrowing costs rise, investors demand more income per dollar invested, so cap rates tend to rise and prices fall for the same NOI — and vice versa. That inverse link between cap rates and value is why a building's worth can change even when its rent has not.
Related calculators
Rental Yield
Work out gross and net rental yield, or the rent needed for a target yield.
Cash-on-Cash Return
Measure annual pre-tax cash flow against the cash you actually invested.
GRM
Compute the gross rent multiplier, or solve for price or rent.
DSCR
Work out debt service coverage ratio, or the debt supportable at a target DSCR.
Rental Property ROI
Estimate cash flow, cash-on-cash and total ROI for a financed rental, including sale.
Disclaimer. This calculator provides estimates for informational purposes only. Results are based on the information you enter and the assumptions used by the calculator. Actual financial, tax, business valuation, lending, marketplace or investment outcomes may differ. Consider consulting a qualified professional for decisions involving significant amounts of money. Cap rate is an estimate based on your NOI and value inputs and excludes financing. Market cap rates vary by location and asset class.