Cap Rate Calculator
Find Net Operating Income, capitalization rate, and the max price to pay for your target return.
This cap rate calculator computes a property's capitalization rate — Net Operating Income divided by purchase price — the standard, financing-independent metric investors and appraisers use to compare income properties across markets. Enter rent, vacancy, and operating expenses to get your NOI, expense ratio, and the maximum price you should pay to hit a target cap rate.
How Cap Rate Is Calculated
Capitalization rate strips out financing entirely, showing the return a property would generate if purchased with all cash. That makes it the standard way to compare properties or markets on an apples-to-apples basis, regardless of how any individual buyer finances the deal.
| Variable | Definition |
|---|---|
| Effective Gross Income | Gross rent after subtracting a vacancy allowance |
| Operating Expenses | Taxes, insurance, HOA, maintenance, and management — excludes mortgage P&I |
| NOI | Effective Gross Income minus Operating Expenses |
| Cap Rate | NOI as a percentage of purchase price — higher generally means more cash yield, often with more risk |
Worked example: A $350,000 property renting for $2,800/month generates $33,600 in gross annual rent. After a 5% vacancy allowance and $9,800 in combined taxes, insurance, maintenance, and management, NOI lands near $22,120 — a cap rate of about 6.3%. At a 7% target cap rate, the same NOI implies a maximum purchase price of roughly $316,000.
💡 Pro-Tip
Cap rate tells you nothing about your actual return once you finance the deal. Because cap rate assumes an all-cash purchase, two investors buying the identical property at the identical cap rate can end up with very different results depending on their loan terms. Use cap rate to screen and compare deals quickly, then run the same numbers through the rental property calculator or DSCR calculator once you have real financing terms, to see leveraged cash-on-cash return and loan qualification.
Cap Rate Calculator
Net Operating Income ÷ Purchase Price — the return metric investors compare across markets.
Capitalization Rate
NOI: $20,613/yr
Income
Annual Operating Expenses
Rating
Typical for stable, lower-risk suburban and secondary markets.
Net Operating Income (NOI)
$20,613/yr
Operating Expense Ratio
35.42%
Max Price for 7% Target Cap Rate
$294,469
Based on your results — what to do next:
Check if this deal qualifies for a DSCR loan
NOI of $20,613/yr — run it against a proposed loan amount to see your Debt Service Coverage Ratio and lender pricing tier.
See full rental cash flow, not just cap rate
A 5.89% cap rate ignores financing. Add your loan terms to see cash-on-cash return and monthly cash flow.
Value this as an income-producing asset
Apply EBITDA-style valuation logic to your NOI of $20,613 to sanity-check the purchase price.
Cap Rate FAQ
What is a good cap rate for a rental property?
5-10% is generally considered good, though the right number depends on the market. Stable, low-risk coastal metros often trade at 3-5% because of appreciation potential, while higher-yield secondary and tertiary markets can run 7-10%+ to compensate for added risk.
How do you calculate cap rate?
Cap Rate = Net Operating Income ÷ Purchase Price. NOI is effective gross rental income after vacancy, minus operating expenses like taxes, insurance, maintenance, and management fees — excluding mortgage payments and depreciation.
Does cap rate include the mortgage payment?
No — cap rate is calculated on an unleveraged, all-cash basis, deliberately excluding financing costs. That makes it useful for comparing properties or markets independent of how any individual buyer finances the deal.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures NOI against the full purchase price with no financing. Cash-on-cash return measures annual pre-tax cash flow after mortgage payments against the actual cash invested — down payment plus closing costs — reflecting the investor's leveraged return.
How do I use cap rate to find the max price to pay for a property?
Divide NOI by your target cap rate. A property generating $28,000 NOI at a 7% target cap rate implies a maximum price of $400,000 ($28,000 ÷ 0.07). Paying more pushes your return below target.