Cap Rate Calculator
Size up a rental property in seconds. Enter the price, the rent, a vacancy allowance and your operating expenses to get the capitalization rate — plus net operating income, monthly NOI and the gross rent multiplier. No mortgage required: the cap rate measures the property itself.
Cap rate = net operating income ÷ property value × 100. A $300,000 rental collecting $30,000 a year, with a 5% vacancy allowance and $9,000 of operating expenses, has $28,500 of effective income, $19,500 of NOI, and a cap rate of 6.50%. NOI excludes the mortgage — most residential rentals run 4–10%.
Enter the property's numbers
New to this? Leave the defaults — they're realistic — and change the price, rent and expenses to match your deal. Results update as you type.
How to use it
- Enter the property value or purchase price. Use the asking price, your offer or a recent appraisal — whatever you're trying to evaluate.
- Add the annual gross rent. Multiply the monthly rent by 12. For a multi-unit, total every unit's rent.
- Set a vacancy allowance. Few rentals stay occupied 100% of the year. 5% is a common starting point; raise it for slower markets or high turnover.
- Enter annual operating expenses. Property taxes, insurance, maintenance, repairs and management — but not your mortgage, which the cap rate deliberately leaves out.
- Read the cap rate and compare it to other properties in the same market. The tiles show the NOI, monthly NOI, effective income and gross rent multiplier behind it.
How the cap rate works
The capitalization rate answers a simple question: if you bought this property outright with cash, what annual return would its income produce? It strips out financing entirely, so two investors looking at the same building get the same cap rate no matter how each one would pay for it. That's what makes it the standard yardstick for comparing rental properties.
Everything hinges on net operating income (NOI) — the income the property throws off after running costs, but before debt. You start with the gross rent, knock off a vacancy allowance for the weeks it sits empty to get the effective gross income, then subtract the operating expenses.
What counts as an operating expense: property taxes, landlord insurance, routine maintenance and repairs, property-management fees, and any utilities or HOA dues the owner pays. What's deliberately excluded: the mortgage (principal and interest), income taxes, depreciation, and one-time capital improvements like a new roof. Leaving the mortgage out is the whole point — financing is personal to each buyer, while the cap rate describes the property.
Divide that NOI by the property's value and you have the cap rate. A higher number means more income per dollar invested; a lower number means you're paying more for each dollar of income — usually in a safer, pricier market.
The formula & a worked example
Worked example (the defaults above):
- Property value = $300,000; annual gross rent = $30,000.
- Vacancy 5%: effective income = 30,000 × (1 − 0.05) = $28,500.
- Operating expenses = $9,000, so NOI = 28,500 − 9,000 = $19,500.
- Cap rate = 19,500 ÷ 300,000 × 100 = 6.50%.
- Monthly NOI = 19,500 ÷ 12 = $1,625.
- Gross rent multiplier = 300,000 ÷ 30,000 = 10.00×.
The gross rent multiplier is a quick back-of-the-envelope companion to the cap rate: it's the price as a multiple of yearly rent, ignoring vacancy and expenses. Lower is generally better. It's handy for a fast first screen, but the cap rate — which accounts for vacancy and operating costs — is the more honest measure.
What's a good cap rate?
There's no universal "good" number — it depends entirely on the market and the risk. As a rough guide, most residential rentals land somewhere between 4% and 10%, but where a particular deal sits in that band tells a story.
- Low cap rates (roughly 3–5%) show up in expensive, high-demand, low-risk markets — think prime neighborhoods in major cities. Buyers accept less income per dollar because they expect stability and price appreciation.
- Mid cap rates (5–8%) are typical of solid rentals in steady markets — enough income to cash-flow with sensible financing, without the red flags of a bargain.
- High cap rates (8–10%+) usually appear in cheaper or higher-risk areas: softer demand, older buildings, more turnover or tougher tenant economics. The extra yield is compensation for that risk, not free money.
The most useful comparison is local. A 6.5% cap rate might be excellent in one metro and mediocre in another. Compare a property against similar buildings in the same market, at the same risk level, rather than against a national rule of thumb.
Frequently asked questions
What is a cap rate?
A capitalization rate, or cap rate, is a rental property's net operating income (NOI) divided by its value or purchase price, shown as a percentage. It estimates the unleveraged annual return the property produces before any mortgage. A $300,000 rental with $19,500 of NOI has a cap rate of 6.5%. A higher cap rate means more income per dollar invested.
What's a good cap rate?
There's no single right number — most residential rentals fall in the 4% to 10% range. Lower cap rates (3–5%) are typical in expensive, low-risk, high-demand markets where buyers accept less income for safety and appreciation. Higher cap rates (8–10%+) usually appear in cheaper or higher-risk markets and compensate for that risk. A good cap rate is one that beats comparable properties in the same market for the same level of risk.
Does cap rate include the mortgage?
No. Net operating income deliberately excludes mortgage payments, loan interest and other financing costs. That's what makes the cap rate a property-level metric — it lets you compare two buildings on the income they generate regardless of how each buyer finances the purchase. Mortgage costs belong in a cash-on-cash or leveraged-return calculation, not the cap rate.
What's the difference between cap rate and cash-on-cash return?
Cap rate measures the unleveraged return on the property's full value (NOI ÷ value) and ignores financing. Cash-on-cash return measures the leveraged return on the actual cash you put in — annual pre-tax cash flow after the mortgage, divided by your down payment and closing costs. Cap rate compares properties; cash-on-cash measures your personal return given how you financed the deal.
What is net operating income (NOI)?
NOI is the rent a property actually collects after a vacancy allowance, minus its operating expenses — taxes, insurance, maintenance, repairs and management. It excludes the mortgage, income taxes and one-time capital improvements. NOI is the numerator of the cap rate: cap rate = NOI ÷ property value × 100.