Capitalization Rate (Cap Rate) Calculator
Calculate the capitalization rate for any investment property. Enter NOI and purchase price to see cap rate, monthly income, and property value.
How This Calculator Works
Calculation methodology and assumptions
Cap Rate = Net Operating Income (NOI) ÷ Purchase Price. NOI is annual gross rent minus operating expenses (property tax, insurance, maintenance, management — but NOT mortgage payments). Cap rate measures the property's return independent of financing. A higher cap rate means higher returns but often indicates higher risk or less desirable location.
Frequently Asked Questions
What is a good cap rate?
Cap rates of 5-8% are generally considered good for residential properties. 3-5% is typical in high-demand urban areas. 8-12% may be available in rural or higher-risk markets. The "right" cap rate depends on your risk tolerance and local market.
Does cap rate include mortgage payments?
No, cap rate measures the property's income potential independent of how it's financed. Mortgage payments are NOT included in the NOI calculation. This allows investors to compare properties regardless of financing.