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Cap Rate Calculator

Work out the capitalization rate of an investment property. Enter its net operating income and value — or let the calculator build the income for you — and see how the cap rate stacks up against typical market benchmarks.

Property & Income

Annual Operating Expenses

Operating expenses exclude mortgage payments and depreciation — cap rate is measured before financing.

How It Works

The capitalization rate — or cap rate — is the single most common yardstick for pricing income property. It expresses the annual return a building produces relative to its value, ignoring any mortgage, so two properties can be compared on equal footing regardless of how they are financed.

Formulas:
  • Cap Rate = (Net Operating Income ÷ Property Value) × 100
  • NOI = Effective Gross Income − Operating Expenses
  • Effective Gross Income = Gross Income × (1 − Vacancy %)
  • Break-even Value = NOI ÷ Benchmark Cap Rate
  • Gross Rent Multiplier = Property Value ÷ Gross Annual Income

Net operating income (NOI) is the rent and other income a property collects each year after a vacancy allowance, minus the costs of running it — property tax, insurance, maintenance, management and utilities. It deliberately excludes mortgage payments, depreciation and income tax, because those depend on the buyer rather than the building.

The break-even value shows what you could pay for this income stream and still hit your benchmark cap rate. If it exceeds the asking price, the deal is priced below the market return; if it is lower, you are paying a premium.

Reading the Cap Rate

Higher Cap Rate

  • More income per dollar of value — a cheaper price
  • Often signals higher risk, weaker location or older stock
  • Typical of secondary markets and value-add deals

Lower Cap Rate

  • Less income per dollar — a more expensive price
  • Usually reflects prime locations and stable tenants
  • Common for trophy assets in strong, low-risk markets
As a rough guide, many residential rentals trade around 4–10%. Set the benchmark field to the going rate for your property type and area — cap rates vary widely by asset class and market.

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