Finance category
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Cap Rate Calculator
Compare investment properties on income performance using cap rate, net operating income, and operating expense ratio — without letting financing distort the numbers.
Cap rate
5.77%
Annual NOI
$25,980
Effective gross income
$37,380
Operating expense ratio
30.5%
What the cap rate is telling you
Cap rate is in the typical range many investors target for stabilized rentals in stronger markets.
Annual operating expenses
$11,400
Implied price at this cap rate
$450,000
Cap rate is calculated as net operating income divided by property value, expressed as a percentage. It excludes financing because it is meant to compare property income performance independent of how each deal is financed.
EveryCalc calculators are designed for fast, practical estimates with transparent inputs and no required account. We use plain formulas, visible assumptions, and related tools so visitors can check the result from more than one angle.
Results are informational only. For financial, tax, legal, medical, construction, or other high-impact decisions, verify the output against primary sources or a qualified professional.
Learn more about our review process on the EveryCalc methodology page.
Calculation notes and example
Cap rate formula used here
Cap rate equals net operating income divided by property value or purchase price. NOI is rental income after vacancy and operating expenses, before debt service, income tax, depreciation, and capital structure. That makes cap rate a property-level metric: it tells you the unlevered yield of the real estate, not the return on your specific down payment.
Worked example
A small apartment building with $180,000 of gross scheduled rent, 6% vacancy, and $62,000 of operating expenses has NOI of $107,200. At a $1,600,000 purchase price, the cap rate is 6.7%. If similar buildings trade near 5.8%, either this deal is cheaper, the income is overstated, or the risk is higher. Use the rental property calculator to add loan payments and cash-on-cash return.
Edge cases and practical tips
- Exclude mortgage payments from NOI or the cap rate will be distorted.
- Normalize expenses for taxes, insurance, repairs, and management before trusting seller numbers.
- Cap rate does not capture future rent growth, major capital needs, or financing terms.
Useful companion tools: Rental Property Calculator, Cash-on-Cash Return Calculator, Loan-to-Value Calculator, and Property Tax Calculator.
How to interpret the cap rate result
Best use
Use the result as a planning number for comparing payments, rates, returns, tax reserves, or cash-flow choices before you request a quote or make a commitment.
Cross-check
Compare the answer with the contract, lender estimate, tax form, brokerage statement, payroll record, or invoice that will control the real-world outcome.
Watch for
Do not rely on a single optimistic rate, return, or fee assumption. Money pages work best when you run low, base, and high cases and keep professional advice separate from the estimate.
This page belongs to the Finance calculator library, so the answer should be read in the context of the decision you are modeling rather than as a universal rule.
Before relying on this cap rate estimate
Most calculator mistakes come from the inputs, not the arithmetic. Use this short audit before you reuse the answer in a spreadsheet, quote, application, or important conversation.
Confirm source numbers
Match balances, rates, fees, taxes, income, and payment dates against the lender quote, payroll record, tax form, statement, invoice, or contract.
Separate cash flow from total cost
A lower monthly payment can still cost more over time if fees, interest, taxes, or a longer term are hidden in the structure.
Run conservative cases
Test at least one higher-cost or lower-return case before using the output for a purchase, refinance, investment, loan, or tax decision.
Rerun this page when the rate, price, term, fee, tax rule, income, expense, or expected holding period changes.
How to Use
- Enter the property value or asking price you want to test.
- Add monthly rent, any other income such as parking or laundry, and a realistic vacancy rate.
- Enter the recurring monthly operating expenses for taxes, insurance, repairs, management, and reserves.
- Review cap rate, NOI, effective gross income, and the operating expense ratio to compare the deal against other properties.
Frequently Asked Questions
What is a good cap rate?
There is no universal good cap rate. Stronger urban markets often trade at lower cap rates because investors expect appreciation. Secondary markets and properties with more management work usually need higher cap rates to be worth pursuing.
Why does cap rate exclude financing?
Cap rate is meant to compare the income performance of properties independent of how each one is financed. Two investors paying cash and using a 30-year loan should still see the same property cap rate.
Should I include the mortgage payment in NOI?
No. NOI excludes financing, depreciation, and income taxes. Loan payments affect cash flow and cash-on-cash return, but not NOI or cap rate.
What is the operating expense ratio?
Operating expense ratio compares operating expenses with effective gross income. Many small residential rentals run a 35–55% ratio depending on age, condition, and what utilities the owner pays.
How does cap rate compare with cash-on-cash return?
Cap rate measures property income performance. Cash-on-cash return measures how the cash you actually invested is performing once financing is layered on. Use both together when comparing leveraged deals.
Related Calculators
Rent Roll Calculator
Build the rent roll that drives effective gross income into this cap rate.
Cash-on-Cash Return Calculator
Layer financing onto the deal and see what the cash you put in is actually earning.
Rental Cash Flow Calculator
Build a full monthly cash flow with detailed expenses, vacancy, and debt service.
DSCR Calculator
Translate NOI into the debt service coverage ratio lenders use to size investor loans.
1031 Exchange Calculator
If selling this property, model the tax deferred by swapping into a like-kind replacement.
Property Management Fee Calculator
Budget full management cost so operating expenses in the cap rate are realistic.
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