Cap Rate Calculator
Measure a rental property's return from income and price.
Share of the year the unit sits empty.
Taxes, insurance, maintenance, management.
Results update as you type.
How it works
Capitalization rate, universally shortened to cap rate, is the yardstick investors use to judge how much income a rental property produces relative to its price. A cap rate calculator strips a deal down to its essentials: annual rent, expected vacancy, running costs, and the price you would pay. From those numbers it derives net operating income, the profit left after expenses but before any mortgage, and then divides that figure by the property value to give a clean percentage return. The measure matters because it lets you compare a duplex against an apartment block or a property in one city against another without being distracted by loan terms or purchase size. A higher cap rate signals more income per dollar invested, though it often comes paired with higher risk or a weaker location. A lower cap rate usually reflects a prime, stable asset that buyers accept for safety. The formula works because dividing recurring income by price normalises every deal into the same yield language, the way a bond quotes a coupon. Alongside cap rate, the gross rent multiplier offers a quick price-to-rent screen. Investors, agents, and lenders lean on a cap rate calculator constantly to filter listings before committing to deeper due diligence.
Cap rate = NOI ÷ property value × 100
Net operating income is annual rent minus vacancy losses and operating expenses, so it isolates the cash the property throws off before financing. Dividing that income by the purchase price expresses the return as a percentage, letting you compare buildings of very different sizes on equal footing. The gross rent multiplier ignores expenses and simply relates price to rent, offering a rougher but faster screening ratio.
Source:Standard real estate formula
We review all our tools from time to time to ensure accuracy.
Worked example
How to use this calculator
- 1
Enter your values
Enter property value and annual rental income.
- 2
Adjust the options
Adjust vacancy rate and annual operating expenses if they apply — sensible defaults are already set.
- 3
Read your result
Cap rate updates instantly as you type — no button to press.
Frequently asked questions
What counts as a good cap rate?
There is no single correct number because cap rates trade off return against risk. Many investors treat 5% to 10% as a typical range, with lower figures reflecting prime, stable markets and higher figures compensating for older buildings or weaker locations. Compare any property's cap rate against recent sales of similar assets in the same area, since local demand and interest rates shift the benchmark constantly.
Does cap rate include my mortgage payment?
No, and that is deliberate. Cap rate is built on net operating income, which subtracts operating expenses but excludes financing costs like mortgage principal and interest. Leaving debt out lets you compare the property itself, independent of how any particular buyer chooses to fund it. To judge your actual leveraged return you would instead look at cash-on-cash return, which factors in your loan and down payment.
Which expenses belong in net operating income?
Include recurring costs of owning and running the property: property taxes, insurance, maintenance and repairs, property management fees, utilities you cover, and reasonable reserves for vacancy. Exclude your mortgage payment, income taxes, and large one-off capital improvements like a new roof. Keeping the expense list consistent from deal to deal is what makes cap rate a fair, apples-to-apples comparison tool across a portfolio.
How does the gross rent multiplier differ from cap rate?
The gross rent multiplier divides price by gross annual rent and ignores expenses entirely, so it is a faster but blunter screen. A lower multiplier suggests a cheaper property relative to its rent. Cap rate is more accurate because it accounts for vacancy and operating costs through net operating income. Use the multiplier to sift many listings quickly, then compute cap rate on the finalists.
Why do cap rates move when interest rates change?
When borrowing gets more expensive, investors demand higher yields to justify a purchase, so prices soften and cap rates rise. When rates fall, cheap financing pushes buyers to accept lower yields and prices climb, compressing cap rates. This inverse relationship means the same rental income can support very different valuations across the market cycle, which is why current-market comparisons matter more than historical averages.