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Cap Rate Calculator

Analyze a rental property's return with capitalization rate (cap rate). Enter purchase price, rental income and expenses to find your Net Operating Income, cap rate, and optionally your cash-on-cash return if financed.

Enter Property Details

Tax, insurance, maintenance, management, HOA (not mortgage)
Cap Rate
0%
Low RiskModerateHigher Risk

Income Breakdown

Gross Rental Income$0
Vacancy Loss-$0
Operating Expenses-$0
Net Operating Income$0

Cap Rate & NOI Formulas

Net Operating Income (NOI)

NOI = Gross Rental Income − Vacancy Loss − Operating Expenses

(Excludes mortgage payments, depreciation, and capital expenditures)

Cap Rate

Cap Rate = (NOI ÷ Purchase Price) × 100

Worked Example

$300,000 property, $30,000 gross annual rent, 5% vacancy, $8,000 operating expenses:

Vacancy Loss = 30,000 × 0.05 = $1,500
NOI = 30,000 − 1,500 − 8,000 = $20,500
Cap Rate = (20,500 ÷ 300,000) × 100 = 6.83%

Cash-on-Cash Return (if financed)

Annual Cash Flow = NOI − Annual Mortgage Payments
Cash Invested = Down Payment + Closing Costs
Cash-on-Cash Return = (Annual Cash Flow ÷ Cash Invested) × 100

Frequently Asked Questions

There's no universal 'good' cap rate - it depends heavily on location and property type. Generally, 4-5% is common in low-risk, high-demand markets (major coastal cities), 5-8% is typical for many suburban and secondary markets, and 8-10%+ often signals higher risk (rougher neighborhoods, older properties, or markets with less appreciation potential). Lower cap rates generally mean lower risk and lower cash flow; higher cap rates generally mean higher risk and higher cash flow.
NOI = Gross Rental Income - Vacancy Loss - Operating Expenses. Operating expenses include property taxes, insurance, maintenance, property management fees, and HOA dues - but NOT mortgage payments (debt service), depreciation, or capital expenditures. NOI represents the property's profitability before financing costs, which is why cap rate is useful for comparing properties regardless of how they're financed.
Cap rate measures a property's return based on its full purchase price, ignoring financing - useful for comparing properties on an apples-to-apples basis. Cash-on-cash return measures the return specifically on the cash you actually invested (your down payment plus closing costs), accounting for mortgage payments. A leveraged property (financed with a mortgage) often has a higher cash-on-cash return than its cap rate, because you're earning a return on a smaller amount of your own cash.
No - cap rate is calculated before financing costs, using the full purchase price and NOI (which excludes mortgage payments). This is intentional: it lets investors compare a property's fundamental income-generating potential regardless of how it's financed, whether purchased in cash or with a mortgage. For a return figure that includes financing, use cash-on-cash return instead.

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Cap Rate Calculator - Evaluate Rental Property Investment Returns

Capitalization rate (cap rate) is the standard metric real estate investors use to quickly compare the income-generating potential of different properties, independent of how each is financed. It strips out mortgage payments entirely, focusing purely on how much a property earns relative to what it costs to buy - making it possible to compare a $200,000 duplex against a $2 million apartment building on the same scale.

The formula: Cap Rate = (Net Operating Income ÷ Purchase Price) × 100
Quick example: $300,000 property, $20,500 NOI 6.83% cap rate

What Counts as an Operating Expense (and What Doesn't)

Getting NOI right depends on correctly categorizing expenses. Operating expenses include property taxes, insurance, routine maintenance and repairs, property management fees, HOA dues, and utilities the owner pays. Mortgage principal and interest payments are deliberately excluded, since cap rate is meant to measure the property's own performance, not the investor's specific financing choices. Depreciation and large one-time capital improvements (a new roof, for example) are also typically excluded from NOI, since they aren't part of regular operating cash flow.

Cap Rate Isn't the Whole Story

A higher cap rate isn't automatically "better" - it usually reflects higher perceived risk, whether from location, property condition, tenant quality, or market volatility. A 4% cap rate property in a stable, appreciating market may be a smarter long-term hold than an 11% cap rate property in a declining neighborhood with high tenant turnover. Cap rate is best used to compare similar property types within the same market, not as a universal "good vs. bad" scorecard across very different investments.

How this calculator works, and where the numbers come from

The Cap Rate Calculator applies the standard formula for this calculation to the values you enter and updates the result as you type. The calculation itself happens in your browser, and the page explains the method so you can check any result by hand.

Please note: Results are estimates. Lender terms, local taxes and fees vary, so confirm figures with your lender or a qualified adviser.

Sources and further reading

Last reviewed: by the CalcQube Editorial Team. See our editorial policy for how we build and check calculators, or report an error.