Free calculator
Cap Rate Calculator (Capitalization Rate)
A cap rate calculator divides a property's annual net operating income by its value to show the unleveraged return. For a property with $24,000 in net operating income and a $400,000 value, the cap rate is 6%. Higher cap rates mean more income per dollar invested — often signaling higher returns but also more risk.
Cap Rate = Net Operating Income ÷ Property Value
How it works
Cap rate strips financing out of the picture so you can compare income properties on equal footing. The calculator takes monthly rent, subtracts operating expenses to find net operating income, annualizes it, and divides by the purchase price or value.
There's no single "good" cap rate — it depends on the market and asset. Lower cap rates (4–5%) are typical in expensive, stable metros; higher cap rates (8%+) appear in cheaper or higher-risk markets. Compare a property's cap rate to similar properties in the same area, not to a universal target.
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Get started freeFrequently asked questions
- How do you calculate cap rate?
- Divide the property's annual net operating income (rent minus operating expenses, before mortgage) by its purchase price or current value, then express it as a percentage. A $24,000 NOI on a $400,000 property is a 6% cap rate.
- What is a good cap rate?
- It depends on the market. Lower cap rates around 4–5% are common in expensive, stable areas; higher cap rates of 8% or more show up in cheaper or higher-risk markets. Judge a cap rate against comparable properties in the same area rather than a fixed benchmark.
- Does cap rate include the mortgage?
- No. Cap rate deliberately excludes financing — it uses net operating income before any loan payment. That's what makes it useful for comparing properties regardless of how each is financed. To factor in your loan, use cash-on-cash return instead.