Cap Rate Calculator
Find a rental property’s capitalization rate and net operating income — the cleanest way to compare deals regardless of how they’re financed.
Inputs
Cap Rate
5.79%
NOI ÷ purchase price
Annual NOI
$17,360
Monthly NOI
$1,447
Effective Income
$27,360
Expense Ratio
37%
Gross Rent Multiplier
10.4x
Income Breakdown (annual)
Smart Insights
A 5.79% cap rate is in the balanced range most rental investors look for — reasonable current yield for moderate risk.
Operating expenses are 37% of effective income. The "50% rule" assumes ~50% of rent goes to expenses (excluding mortgage); if your estimate is far below that, double-check you haven't missed maintenance, vacancy, or capital reserves.
Cap rate ignores financing, so it's the cleanest way to compare two properties. For the return on your actual cash, use cash-on-cash return instead (see the Rental Property calculator).
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How to Use This Calculator
Enter the purchase price, the monthly rent, an estimated vacancy rate, and total annual operating expenses (excluding the mortgage). The calculator computes NOI, the cap rate, the expense ratio, and the gross rent multiplier — updating instantly as you adjust any input.
Reading the Cap Rate
A higher cap rate means more income relative to price — but not necessarily a better investment. High cap rates often come with higher risk (weaker locations, older buildings, thinner demand), while prime properties in strong markets trade at low cap rates because buyers expect appreciation. Use cap rate to compare similar properties, then confirm with a full cash-flow analysis.
Frequently Asked Questions
What is a cap rate?
The capitalization rate is a property’s net operating income (NOI) divided by its purchase price, shown as a percentage. It represents the unleveraged annual return — what you’d earn if you bought the property in cash.
How do you calculate cap rate?
Cap rate = NOI ÷ purchase price. NOI is effective rental income (gross rent minus vacancy) minus operating expenses like taxes, insurance, maintenance, and management. The mortgage is excluded, which is what makes cap rate comparable across deals.
What is a good cap rate?
It depends on the market. Roughly, under 5% is common in expensive, high-appreciation areas; 5–8% is a balanced range most investors target; above 8% can mean strong yield or higher risk. Always compare to similar local properties, not a national average.
Why does cap rate ignore the mortgage?
Because financing varies by buyer. Excluding the loan lets you compare the property itself. To measure the return on your actual invested cash (which does depend on financing), use cash-on-cash return instead.
What is the difference between cap rate and GRM?
Gross rent multiplier (GRM) is price ÷ annual gross rent — a rough screen that ignores expenses. Cap rate accounts for operating expenses via NOI, so it is a more accurate measure of profitability.