Cap Rate Calculator
Calculate a property's capitalization rate from net operating income and value, and see the value implied at a target cap rate. Runs in your browser.
Capitalization rate
- Net operating income (NOI)
- $38,000/yr
- Cap rate
- 6.91%
- Implied value @ 6% cap
- $633,333
Cap rate = NOI ÷ property value. NOI is gross income minus operating expenses (taxes, insurance, management, maintenance, vacancy) — but excludes mortgage payments. Higher cap rate = higher yield but usually higher risk/lower-growth area; prime markets trade at lower caps. Compare against local comparable sales for the same asset class, not a universal benchmark. Informational, not investment advice.
About this tool
The capitalization rate is the core yield metric in real-estate investing: the net operating income (NOI) a property generates as a percentage of its value or price. This calculator computes NOI as gross income minus operating expenses, divides by the property value to get the cap rate, and also shows the value the income would imply at a target cap rate — useful for back-of-envelope valuation. The crucial detail it emphasizes is that NOI excludes mortgage payments (debt service) and capital expenditures; it reflects the property's unleveraged operating performance, which is what makes cap rates comparable across deals regardless of financing. Interpreting the number requires local context: a higher cap rate means a higher income yield but typically signals higher risk or a lower-growth area, while prime properties in strong markets trade at lower cap rates because buyers accept less yield for stability and appreciation. So compare a cap rate against recent comparable sales of the same asset class in the same submarket, not a universal benchmark. It is informational, not investment advice. Everything runs in your browser.
How to use it
- Enter the property's annual gross income.
- Enter annual operating expenses (taxes, insurance, management, maintenance, vacancy — not the mortgage).
- Enter the property value or asking price.
- Read the cap rate and compare to local comparable sales.
Frequently asked questions
- How is cap rate calculated?
- Cap rate = net operating income ÷ property value, as a percentage. NOI is annual gross income minus operating expenses. A property with $38,000 NOI valued at $550,000 has a cap rate of about 6.9%.
- Does NOI include the mortgage?
- No. NOI deliberately excludes debt service (mortgage principal and interest) and capital expenditures, so the cap rate reflects the property's operating yield independent of how it is financed. That makes cap rates comparable across buyers with different loans.
- Is a higher cap rate better?
- Not simply — it is a yield-versus-risk trade-off. Higher cap rates mean more income per dollar but usually come with higher risk, weaker markets, or less appreciation. Lower cap rates reflect premium, stable, growing markets. "Better" depends on your strategy.
- What is a good cap rate?
- It is entirely market- and asset-specific — there is no universal number. Compare against recent sales of similar properties in the same area. A 5% cap might be great in a prime metro and poor in a rural market.
- What expenses count in NOI?
- Property taxes, insurance, property management, maintenance and repairs, utilities you pay, and a vacancy allowance. Exclude the mortgage, income taxes, depreciation, and one-time capital improvements — those are not operating expenses.
- Is this investment advice?
- No. It is an informational metric. Do full due diligence and consult professionals before investing.