Cap Rate Calculator
Find out how much income a property earns relative to its price — before any financing.
Calculate your cap rate
Income
What you paid, or what the property would sell for today.
Total scheduled rent from all units, per month.
Parking, laundry, storage and similar income (optional).
The share of income you expect to lose to empty units or unpaid rent.
Operating expenses
The costs of running the property. Do not include mortgage payments.
Total per month —
Results
Cap rate —
Enter a purchase price and income to see the cap rate.
| Gross annual income | — |
|---|---|
| Vacancy loss | — |
| Effective gross income | — |
| Annual operating expenses | — |
| Net operating income (NOI) | — |
| Expense ratio | — |
| Gross rent multiplier (GRM) | — |
| Purchase price | — |
Financing (optional)
Leave these fields empty for an all-cash purchase. Cash-on-cash return and DSCR appear once you enter a down payment below 100%, an interest rate and a loan term.
The share of the price you pay in cash.
The yearly interest rate of the loan.
How long the loan runs, up to 50 years.
Fees, taxes and other one-off costs paid in cash at purchase (optional).
| Loan amount | — |
|---|---|
| Monthly loan payment | — |
| Annual debt service | — |
| Annual cash flow | — |
| Monthly cash flow | — |
| Cash-on-cash return | — |
| Debt service coverage ratio (DSCR) | — |
Reverse calculation
Find the price at which a property would produce your target cap rate.
| Property value at the target cap rate | — |
|---|
How cap rate is calculated
The calculator follows the standard income approach used by appraisers and investors, in five steps:
- Gross annual income
(Monthly rent + other monthly income) × 12 - Vacancy loss
Gross annual income × vacancy % - Effective gross income
Gross annual income − vacancy loss - Net operating income (NOI)
Effective gross income − annual operating expenses - Cap rate
NOI ÷ purchase price × 100%
What is not part of NOI
Cap rate measures the property itself, not the way you pay for it or your personal taxes. Leave these out:
- Mortgage or loan payments (principal and interest)
- Depreciation and other non-cash accounting entries
- Your personal or corporate income tax
- Major one-off improvements, such as a new roof or a full renovation
Worked example
A small rental house is bought for 250,000. It rents for 2,100 per month, and the owner sets aside 5% of income for vacancy. The yearly running costs are listed below.
The amounts can be in any currency, as long as you use the same one throughout.
| Item | Amount per year |
|---|---|
| Property taxes | 2,600 |
| Property management | 1,700 |
| Insurance | 1,100 |
| Leasing and advertising | 300 |
| HOA or service charges | 0 |
| Utilities paid by the owner | 600 |
| Repairs and maintenance | 1,500 |
| Annual operating expenses | 7,800 |
| Gross annual income | 25,200 |
|---|---|
| Vacancy loss | 1,260 |
| Effective gross income | 23,940 |
| Annual operating expenses | 7,800 |
| Net operating income (NOI) | 16,140 |
| Cap rate | 6.46% |
| Expense ratio | 32.58% |
The cap rate is 6.46%, which falls in the “Healthy” range.
Interpreting your result
There is no single “good” cap rate. Investors compare a property with similar properties in the same area. As a rough guide:
| Cap rate | Rating | What it usually means |
|---|---|---|
| below 0% | Negative your result | Operating costs are higher than the income. The property loses money even before any loan payments. |
| 0% to under 4% | Low your result | Typical of expensive, high-demand areas, or of properties bought for future growth rather than current income. |
| 4% to under 6% | Moderate your result | Common for stable, well-located residential property with steady tenants. |
| 6% to 10% | Healthy your result | A solid income return for many rental properties. |
| over 10% | High your result | Strong income for the price, often because of higher risk, an older building or a weaker location. Find out why before buying. |
These ranges are rules of thumb. Normal cap rates differ between countries, cities, property types and interest-rate environments, so always compare like with like.
Frequently asked questions
What is a cap rate?
The capitalization rate, or cap rate, is a property's net operating income for one year divided by its price or value. It shows the yearly return the property would earn if you bought it outright with cash. A property that costs 200,000 and produces 12,000 of net operating income has a cap rate of 6%.
What is a good cap rate?
It depends on the market and the type of property. In many markets, residential rentals trade at roughly 4% to 10%. A lower cap rate usually means a pricier, lower-risk property in a strong location; a higher one means more income for the price, but often more risk. Compare a property with similar ones nearby rather than with a fixed number.
How is cap rate different from ROI or cash-on-cash return?
Cap rate ignores financing: it treats the property as if it were bought with cash. Cash-on-cash return divides your yearly cash flow after loan payments by the cash you actually put in. ROI usually goes further and includes appreciation, loan paydown and selling costs. Use cap rate to compare properties, and the other two to judge a specific deal.
Why are mortgage payments not included?
Two buyers can finance the same building in very different ways. Leaving the loan out makes the cap rate a property-level measure, so you can compare buildings fairly no matter how each buyer pays for them.
Should I include a vacancy rate?
Yes, in most cases. Few properties are rented every single day of the year, and some tenants pay late or not at all. A vacancy and credit loss of 3% to 10% is a common assumption; use the real history of the property or local market data when you have it.
Can I use this calculator for commercial property?
Yes. The same method works for apartments, offices, shops, warehouses and mixed-use buildings. For commercial leases, check which costs the tenant pays and which the owner pays, and enter only the owner's costs as operating expenses.
Why do cap rates differ between locations?
Prices reflect how buyers see risk and growth. In popular cities, buyers accept a lower income return because they expect rents and values to rise and vacancies to stay low, so cap rates are lower. In smaller or less stable markets, buyers want more income in return for more risk, so cap rates are higher.
What are the limits of the cap rate?
Cap rate is a snapshot of one year. It does not show future rent growth, changes in value, major repairs coming up, or the effect of a loan. It is also only as accurate as the numbers you enter. Use it as a quick first screen, then look at a full cash-flow analysis before you invest.
About this calculator
This free tool helps landlords, investors, students and property managers check the income return of a rental or commercial property in seconds. It shows every step of the calculation so you can see exactly where the result comes from.
It goes beyond a basic cap rate formula: it accounts for vacancy, credit loss and other income, lets you enter expenses monthly or yearly, adds cash flow, cash-on-cash return and DSCR when you enter loan details, works backwards from a target cap rate to a property value, and gives you a shareable link with your numbers.
All calculations happen in your browser. The numbers you type are not sent to any server.
This calculator is for education and information only and is not financial, tax or legal advice. Check important decisions with a qualified professional.