Cap Rate Calculator
Find a rental property's capitalisation rate from net operating income and price.
About the Cap Rate Calculator
Enter the property's value, its gross yearly rent, an allowance for vacancy and unpaid rent, and the yearly operating expenses (excluding mortgage payments). The calculator gives effective income, net operating income (NOI), the expense ratio and the cap rate.
Cap rate is the return you'd earn if you paid cash. Investors compare it across similar properties; lower cap rates usually mean higher prices and lower risk.
The formula
Cap rate = NOI ÷ property value
- NOI
- rent − vacancy − operating expenses (tax, insurance, repairs, management)
Worked example
A 500,000 property renting for 48,000 a year, 5% vacancy, 15,000 expenses
- Effective income: 48,000 × 0.95 = 45,600
- NOI: 45,600 − 15,000 = 30,600
- Cap rate = 30,600 ÷ 500,000 = 6.12%
Things to keep in mind
- Excludes financing, capital spending such as a new roof, and any change in the property's value.
Questions people ask
Does cap rate include the mortgage?
No. Use cash-on-cash return to include financing.
Can I value a property with it?
Yes: value = NOI ÷ market cap rate.
What's a good cap rate?
It depends on the market and property type; compare with similar properties sold nearby.