Cap Rate Calculator

Calculate the capitalization rate for any investment property. Compare returns and make informed real estate investment decisions.

Property Details

Property Value / Purchase Price

Gross Annual Rent

Annual Operating Expenses

Vacancy Rate (%)

Property Taxes

Insurance

Maintenance & Repairs

Property Management

Utilities (if paid)

Monthly HOA

Other Expenses

Cap Rate Analysis

Cap Rate

5.2%

Net Operating Income

$20,620

Expense Ratio

39.7%

Fair Cap Rate (5.2%)

This cap rate is lower than average. May be better for appreciation plays.

Income & Expense Summary

Gross Annual Rent+$36,000

Less: Vacancy (5%)-$1,800

Effective Gross Income$34,200

Less: Operating Expenses-$13,580

Net Operating Income (NOI)$20,620

Cap Rate by Property Class

Class A (Urban Core)

4-5%

Class B (Suburban)

5-7%

Class C (Value-Add)

7-9%

Class D (High Risk)

9-12%+

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Understanding Cap Rate in Real Estate

The Capitalization Rate (Cap Rate) is one of the most important metrics in commercial and residential investment real estate. It represents the expected rate of return on an investment property based on its income.

Cap Rate Formula

Cap Rate = (NOI ÷ Property Value) × 100

Where NOI (Net Operating Income) = Gross Income - Operating Expenses (excluding mortgage payments)

What Affects Cap Rates?

Location: Prime locations have lower cap rates
Property condition: Newer properties command lower cap rates
Tenant quality: Stable tenants reduce risk and cap rates
Market conditions: Strong markets compress cap rates
Interest rates: Rising rates generally increase cap rates

Frequently Asked Questions

What is a good cap rate for rental property?▼

A good cap rate depends on your market and investment strategy. Generally, 4-6% is common in stable, appreciating markets, while 8-12% is typical in cash flow focused markets. Higher cap rates usually indicate higher risk or less desirable locations.

How do you calculate cap rate?▼

Cap Rate = (Net Operating Income ÷ Property Value) × 100. For example, if a property generates $30,000 NOI and is worth $400,000, the cap rate is 7.5%.

What is the difference between cap rate and ROI?▼

Cap rate measures unlevered return (no mortgage) based on property value and NOI. ROI (Return on Investment) measures your actual return on cash invested, which includes the effects of leverage, appreciation, and other factors.

Why do higher cap rates mean higher risk?▼

Higher cap rates often indicate that investors require more return to compensate for risks like poor location, older buildings, economic instability, or tenant quality issues. Premium properties in strong markets command lower cap rates.

Should I use cap rate to compare properties?▼

Cap rate is useful for comparing similar properties in the same market. However, don't compare cap rates across different markets or property types, as market dynamics vary significantly.