Cap Rate Calculator
Calculate the Capitalization Rate (Cap Rate) to evaluate the profitability of an investment property independent of financing.
How to Use This Calculator
- 1
Enter Price
Input the property purchase price or current market value.
- 2
Input Income & Expenses
Enter gross rental income and operating expenses to compute NOI.
- 3
Get Cap Rate
See the resulting capitalization rate and expense ratio, and compare it against your market.
Frequently Asked Questions
What is a good Cap Rate?
It varies by market and risk, but 4–10% is common. Prime locations in big cities often trade at 3–5%, while secondary markets and riskier assets offer 7–10%. Higher cap rates generally imply higher risk or lower appreciation potential.
What is Net Operating Income (NOI)?
NOI is gross rental income minus all operating expenses — property tax, insurance, maintenance, management, and vacancy — but excluding mortgage payments and income tax. It represents the property's earning power independent of how it is financed.
Why does cap rate ignore financing?
Because it measures the property itself, not your loan. Two investors with different mortgages earn the same NOI from the same building. This makes cap rate ideal for comparing properties, while cash-on-cash return measures your personal leveraged return.
How do cap rates relate to property values?
Value equals NOI divided by cap rate, so small cap rate changes move prices a lot: a property with $50,000 NOI is worth $1,000,000 at a 5% cap rate but only $714,000 at 7%. Rising market cap rates push values down even when rents are stable.
Cap Rate Analysis
Capitalization Rate (Cap Rate) is the fundamental metric for commercial and residential investment property valuation.
It separates property performance from financing, allowing for apples-to-apples comparison of deals.
NOI
Net Operating Income: Income minus operating expenses.
Cap Rate
NOI / Price. Higher is usually better for cash flow.
Valuation
NOI / Market Cap Rate = Estimated Property Value.