Cap Rate Calculator
Calculate cap rate and NOI for any rental or commercial property
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The property's purchase price or current market value
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Income after vacancy and credit loss, before operating expenses
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Exclude mortgage principal and interest
How to calculate cap rate
Capitalization rate estimates a property's annual, unlevered return. It divides net operating income (NOI) by the purchase price or current market value, making it useful for comparing rental, multifamily, and commercial real estate.
Cap rate = (annual NOI ÷ property value) × 100
Cap rate example
Suppose a rental property costs $500,000, earns $60,000 per year after vacancy and credit loss, and has $15,000 in annual operating expenses. NOI is $45,000. Divide $45,000 by $500,000 to get a 9% cap rate. Use “Load Example” above to reproduce this calculation.
See the complete cap rate formula guideWhat belongs in net operating income?
Start with rent and other recurring property income, subtract vacancy and credit loss, then subtract normal operating expenses:
- Property taxes and insurance
- Repairs, maintenance, and property management
- Utilities paid by the owner
- HOA fees and other recurring operating costs
How to interpret the result
Cap rate is a screening metric, not a complete investment decision. Compare the result with recent sales of similar properties in the same location. Then evaluate lease terms, deferred maintenance, tenant concentration, local supply, financing, and expected income growth. A higher number is not automatically a better deal.
Learn how to compare cap ratesCap rate calculator FAQ
What is a good cap rate?
There is no universal target. Lower cap rates often accompany lower-risk locations or newer assets, while higher cap rates can reflect greater risk, management needs, or weaker expected growth. Compare similar properties in the same market and asset class.
Does cap rate include the mortgage?
No. Cap rate measures the property before financing, so mortgage principal, interest, and other debt payments are not operating expenses. This makes properties easier to compare regardless of how each buyer finances them.
Should vacancy be included in NOI?
Yes. Use effective gross income after a realistic vacancy and credit-loss allowance. Using scheduled rent with no vacancy assumption can overstate NOI and the resulting cap rate.
Can cap rate be negative?
Yes. If annual operating expenses exceed effective gross income, NOI and cap rate are negative. That result signals that the property does not cover its operating costs before debt service.