Reviewed November 2026 · Estimate only, not financial advice.
The cap rate is the yield a rental property produces on its price, before financing. Enter the annual rental income, the operating expenses and the property value to get the net operating income (NOI) and the cap rate.
How This Cap Rate Calculator Works
Net operating income is the rent left after operating expenses — taxes, insurance, maintenance, management and vacancies — but before mortgage payments and income tax. The cap rate divides that income by the property's value, giving the unleveraged annual yield as a percentage.
NOI = Annual rent − Operating expenses · Cap rate = NOI ÷ Property value × 100
Mortgage payments are NOT an operating expense and are excluded from NOI. Cap rate ignores financing on purpose, so properties can be compared on the asset alone.
Worked example: A property collects $36,000 a year in rent and costs $12,000 a year to run, so NOI = $24,000. On a $300,000 property the cap rate = $24,000 ÷ $300,000 = 8.00%.
Practical tips
Higher is not always better.A 10% cap rate often means a riskier area or a property needing work; a 4% cap rate often means a prime, stable location. Compare cap rates only within the same market and property type.
Do not forget vacancy.Budget 5–8% of rent for vacancy and turnover. A property that is empty one month a year earns about 8% less than the headline rent suggests.
Value a property from its cap rate.Value = NOI ÷ cap rate. If similar properties sell at a 6% cap rate and yours earns $24,000 NOI, its market value is about $400,000.
Cap rate is not cash flow.It excludes the mortgage. A property can have a great cap rate and still lose money monthly if the loan is expensive — check the cash flow too.
Frequently Asked Questions
What is a cap rate?
The capitalization rate: net operating income divided by the property's value, as a percentage. It is the annual yield the property produces before financing.
What is NOI?
Net Operating Income — annual rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy). Mortgage payments and income tax are excluded.
What is a good cap rate?
It depends on the market. US residential rentals often show 4–8%; riskier or less central properties can show 8–12%. Always compare with similar properties in the same area.
Does the cap rate include the mortgage?
No. Cap rate deliberately ignores financing, so it measures the property itself. Two buyers with different loans get the same cap rate on the same property.
How do I use the cap rate to value a property?
Value = NOI ÷ cap rate. If comparable properties trade at a 6% cap rate and a property earns $24,000 NOI, its value is about $400,000.
Is this financial advice?
No. This is a planning estimate only, not financial advice.
