Cap Rate Calculator
Estimate capitalization rate and net operating income for an income-producing property
Cap rate uses net operating income before financing costs, income taxes and depreciation.
Capitalization rate
How we calculated it
About the Cap Rate Calculator
Capitalization rate compares a property’s net operating income with its value or purchase price. It is a quick way to express unlevered property income yield before financing and income taxes.
Cap rate is not the same as total investment return. It does not include mortgage structure, future appreciation, capital expenditures or sale proceeds unless those effects are modeled separately.
How to Use the Cap Rate Calculator
- Enter annual net operating income.
- Enter property value or acquisition price.
- Calculate cap rate.
- Verify that NOI excludes financing costs but includes the operating expenses required by the chosen real-estate definition.
How the Calculation Works
Cap rate = annual net operating income ÷ property value ×100.
NOI generally means property revenue minus operating expenses before interest, income taxes, depreciation and financing. Using gross rent instead of NOI overstates cap rate.
Worked example
Cap Rate Calculator Worked Example
$36,000 NOI on a $450,000 property
Cap rate = $36,000÷$450,000×100 = 8%.
Result guide
Understanding Your Cap Rate Calculator Result
An 8% cap rate means annual NOI equals 8% of the stated property value. Higher cap rates can reflect stronger income relative to price, but they can also be associated with higher perceived risk or weaker growth expectations. Cap rate also changes when the value in the denominator changes even if NOI stays constant. A property bought at a lower price can show a higher going-in cap rate than the same property valued later at a higher market price, so state whether the denominator is purchase price, current value or an appraisal.
Before you rely on the answer
Assumptions and Limitations
- NOI and property value use the same annual operating basis.
- Financing costs are excluded from NOI.
- Major future capital expenditure and appreciation are outside the simple ratio.
Practical tip
Using This Result in Practice
Normalize one-time expenses and vacancy assumptions before comparing properties. A high cap rate based on unusually low expenses can disappear once realistic operating costs are included.
Related calculations
Useful Calculations to Continue With
If you want a simpler rent-based yield measure, use the Rental Yield Calculator where appropriate.
If financing leverage is also part of the purchase analysis, use the Loan-to-Value Calculator separately.
Common questions
Cap Rate Calculator FAQ
What is cap rate?
Annual net operating income divided by property value.
Does cap rate include mortgage payments?
No. It is normally an unlevered property metric before financing.
Is a higher cap rate always better?
Not automatically. It may come with greater risk, weaker location or lower growth expectations.