About the Cap Rate Calculator
This cap rate calculator turns a property’s rent roll into the single number commercial and residential investors use to compare deals: the capitalization rate. Enter the price or value, annual gross rent, any other income such as parking or laundry, a vacancy allowance and yearly operating expenses. The calculator builds net operating income (NOI) step by step and divides it by the value to give the cap rate.
It is useful when screening listings, checking a broker’s pro forma, or deciding what to offer. Add the cap rate that similar properties trade at in your market and the tool also shows what the property is worth at that rate, so you can see at a glance whether the asking price is rich or cheap.
Cap rate assumes an all-cash purchase: it ignores mortgage payments, depreciation and income tax, and operating expenses should exclude capital improvements. That makes it a clean way to compare properties, but pair it with a cash-on-cash or DSCR check once financing is involved.
With the default inputs, the cap rate is 8.4%. Change any value above to recalculate instantly.
How to use the cap rate calculator
- 1Enter the purchase price or current market value.
- 2Enter annual gross rent and any other income the property earns.
- 3Set a vacancy allowance — 5%–8% is common for stabilised residential rentals.
- 4Add yearly operating expenses, leaving out mortgage payments and capital upgrades.
- 5Enter the cap rate similar properties trade at to see the implied value.
Formula and method
Net operating income starts with the full-year scheduled rent, subtracts the vacancy and credit-loss allowance, adds other income, and then subtracts operating expenses such as taxes, insurance, repairs, management and owner-paid utilities. Mortgage principal and interest, depreciation, income tax and capital improvements are deliberately left out so the figure describes the property, not the buyer.
The cap rate is NOI divided by the price or current value. Rearranging the same formula gives value = NOI ÷ cap rate, which is how appraisers and brokers estimate a property’s worth from market cap rates. The gross rent multiplier shown alongside is simply value divided by gross annual income.
- NOI
- Net operating income per year
- EGI
- Effective gross income = gross rent − vacancy + other income
- V
- Property value or purchase price
- Cap
- Capitalization rate, NOI ÷ V
Worked examples
$500k rental earning $60k a year
Losing 5% of $60,000 to vacancy leaves $57,000 of effective income. Subtracting $15,000 of expenses gives NOI of $42,000, and $42,000 ÷ $500,000 is an 8.4% cap rate. At a 7% market cap rate the same income would justify a $600,000 value.
$1.2M apartment building with parking income
Rent of $150,000 less 7% vacancy is $139,500; adding $6,000 of parking income gives $145,500. After $55,000 of expenses NOI is $90,500, a 7.54% cap rate on $1.2M. Buildings like it trading at 6.5% would put its value near $1.39M.
Checking an asking price against a 6% market
Effective income is $34,200 and NOI is $21,600, a 6.17% cap rate at $350,000. Because 6% is the market rate, the property is worth about $360,000 on income alone, so the asking price is fair to slightly cheap.
Frequently asked questions
What is a good cap rate?+
There is no single good number. Prime properties in large cities often trade at 4%–6%, while older or smaller-market properties may trade at 8%–10% or more. A higher cap rate means more income per dollar but usually more risk, so compare against similar properties in the same market.
Does cap rate include the mortgage payment?+
No. Cap rate is calculated on an all-cash basis, so NOI excludes principal and interest. That lets you compare properties regardless of how they are financed. Use a cash-on-cash return or DSCR calculator to judge a deal with a loan.
What expenses go into NOI?+
Include property tax, insurance, repairs and maintenance, property management, owner-paid utilities, HOA dues, landscaping and similar recurring costs. Exclude mortgage payments, depreciation, income taxes and one-off capital improvements like a new roof.
How do I value a property using cap rate?+
Divide the NOI by the market cap rate. A property with $42,000 of NOI in a market where similar buildings trade at a 7% cap rate is worth about $42,000 ÷ 0.07 = $600,000.
What is the difference between cap rate and cash-on-cash return?+
Cap rate measures NOI against the full property value as if bought with cash. Cash-on-cash return measures the cash flow left after debt service against only the cash you invested, so leverage can push it above or below the cap rate.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.