Cap Rate Calculator
Calculate the capitalization rate of a rental property — annual net operating income divided by the property value — to compare real-estate returns.
Cap rate is one division
The calculator divides a year of net operating income by the property's value or price: cap rate = NOI ÷ price × 100. It also shows the NOI per month.
With the defaults, $24,000 of NOI on a $400,000 property is a 6.00% cap rate, or $2,000 of NOI a month.
The formula is simple, so the result depends almost entirely on the NOI you feed it. If the price is 0, the tool returns 0% rather than an error.
Building the NOI figure yourself
NOI is what the property earns after its running costs and before any financing. Start from rent, take off an allowance for vacancy and unpaid rent, then subtract operating expenses. Here is a single-family rental at $2,800 a month, with a 5% vacancy allowance and 8% management fee as example assumptions:
| Line | Annual amount |
|---|---|
| Scheduled rent ($2,800 × 12) | $33,600.00 |
| Less vacancy allowance (5%) | −$1,680.00 |
| Less management (8% of collected rent) | −$2,553.60 |
| Less property tax | −$4,800.00 |
| Less insurance | −$1,500.00 |
| Less maintenance and repairs | −$1,800.00 |
| NOI | $21,266.40 |
Entered with a $400,000 price, that is a 5.32% cap rate. Add any utilities, HOA dues or landscaping you pay as owner.
Leave out mortgage principal and interest, depreciation and income tax. Subtract a $2,000 monthly mortgage from the default $24,000 NOI and the cap rate falls to 0.00%, which describes your loan, not the property.
Turning a cap rate into a price
Rearranged, the formula prices a property from its income: value = NOI ÷ cap rate. If similar properties nearby sell at a given cap rate, this tells you what the income supports.
- $24,000 NOI at a 5.5% cap rate supports about $436,363.64.
- The same NOI at 6.5% supports about $369,230.77.
One percentage point of cap rate moves the value by $67,132.87 here. The calculator doesn't solve for value directly, so try prices until the cap rate matches the one you are testing.
What the cap rate leaves out
- Financing. Two buyers of the same property see the same cap rate whatever their loan, and very different cash returns.
- Big one-off costs. A new roof or HVAC system usually sits outside NOI, so set aside money for it separately.
- Growth. Cap rate is a one-year snapshot. Expected rent growth or appreciation is not in it.
- Optimistic listings. A seller's projected NOI may assume full occupancy or leave out management. Rebuild it from actual leases and bills before comparing.
Use the same method for every property you compare, or the percentages won't line up.
Frequently asked questions
Should I use the purchase price or today's market value?+
For a purchase, use the price you would pay. For a property you already own, today's value shows what your equity is earning now. Using an old purchase price flatters the result: $24,000 of NOI on a home bought for $250,000 is 9.60%, but only 6.00% on a $400,000 current value.
How is cap rate different from cash-on-cash return?+
Cash-on-cash return divides the cash left after loan payments by the cash you actually put in. With $24,000 of NOI, $1,600 a month of mortgage payments and $100,000 of your own cash invested, the cash flow is $4,800 a year, a 4.8% cash-on-cash return on a property with a 6.00% cap rate.
Is a higher cap rate better?+
It means more income per dollar of price, but buyers often accept a lower cap rate for properties they see as safer or likely to grow, and demand a higher one where they see more risk. Compare cap rates between similar properties in the same area rather than against a single benchmark.
Should I use last year's NOI or next year's?+
Last year's actual NOI is verifiable and is the safer starting point. A forward NOI based on new leases can be reasonable, but label it clearly and test it at your trailing figure too, so you can see how much of the price depends on the projection.
Embed this tool on your website
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<iframe src="https://utilityapp.lat/embed/finance/cap-rate-calculator" title="Cap Rate Calculator" width="100%" height="660" style="border:0;max-width:760px" loading="lazy"></iframe> <p style="font-size:13px"><a href="https://utilityapp.lat/finance/cap-rate-calculator">Cap Rate Calculator</a> by UtilityApp</p>