Cap Rate Calculator
Calculate capitalization rate from net operating income and property price.
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Request a ToolHow to Use the Cap Rate Calculator
This calculator supports two modes to help with different real estate investment questions:
- Calculate Cap Rate. Enter the property purchase price and the annual net operating income (NOI). The calculator instantly shows the capitalization rate as a percentage. Use this mode when evaluating whether a property meets your return threshold.
- Find Property Value. Enter the annual NOI and your target cap rate. The calculator shows the maximum price you should pay for the property to achieve that return. This is useful for making offers based on income potential.
If you do not know the NOI, expand the "Calculate NOI from rent and expenses" section. Enter the gross annual rent, vacancy rate, and operating expenses. The calculator fills in the NOI field automatically.
Results update instantly as you type. Use the Share button to send a pre-filled link, or Copy to grab the result.
About Cap Rate
Capitalization rate (cap rate) is the most widely used metric for comparing real estate investments. It measures the rate of return on a property based on its net operating income relative to its price or value. A higher cap rate means higher potential return but often comes with higher risk. A lower cap rate usually indicates a more stable, lower-risk property in a stronger market.
Cap rate does not account for financing, so it represents the return as if you paid all cash. This makes it useful for comparing properties regardless of how they are financed. For leveraged returns, use a cash-on-cash return calculator instead.
All calculations run entirely in your browser. We never see or store your financial data.
Frequently Asked Questions
What is cap rate in real estate?
Cap rate (capitalization rate) is a percentage that measures a property's annual return based on its net operating income (NOI) divided by its price or value. For example, a property that generates $24,000 in NOI and costs $300,000 has a cap rate of 8%. It is the standard metric for comparing real estate investments because it strips out financing and focuses purely on the property's income-producing ability.
What is a good cap rate for rental property?
Cap rates vary by market, property type, and risk level. In major cities, cap rates of 4-6% are common for stable properties. In secondary markets or higher-risk areas, 7-10% or higher is typical. Generally, a cap rate above 8% is considered strong, while anything below 4% may not justify the risk for most investors. The right cap rate depends on your investment goals and the local market.
What is the difference between cap rate and ROI?
Cap rate measures the return on the total property value using NOI, assuming an all-cash purchase. ROI (return on investment) measures the return on your actual cash invested, which includes the effects of financing. If you put 20% down on a property, your ROI will be different from the cap rate because leverage amplifies both gains and losses. Cap rate is best for comparing properties. ROI is best for evaluating your personal return.
What are the limitations of cap rate?
Cap rate does not account for financing costs, future appreciation, tax benefits, or capital expenditures. It is a snapshot of current income relative to price. A property with a high cap rate might have deferred maintenance or declining rents. A low cap rate property might be in a rapidly appreciating market. Always use cap rate alongside other metrics like cash-on-cash return, gross rent multiplier, and local market analysis.