Cap Rate Calculator (Capitalization Rate)

Calculate cap rate, property value, or required NOI for real estate investments. Essential for property analysis.

Purchase price or current market value

Total rent collected per year

Property tax, insurance, maintenance, management (exclude mortgage)

Desired or market average cap rate

Cap Rate = (NOI / Property Value) * 100\nNOI = Annual Rent - Operating Expenses\nProperty Value = NOI / Cap Rate\nRequired NOI = Property Value * Cap Rate\n\nOperating Expenses: taxes, insurance, maintenance, management\n(EXCLUDE mortgage, depreciation, capex)
Example:\nProperty Value: $500,000\nAnnual Rent: $60,000\nOperating Expenses: $15,000\n\nNOI = $60,000 - $15,000 = $45,000\nCap Rate = ($45,000 / $500,000) * 100 = 9%\n\nInterpretation: 9% cap rate = good return\nExpense Ratio: 25% ($15k/$60k)\nGRM: 8.33 ($500k/$60k)

What is cap rate in real estate?

Capitalization Rate (Cap Rate) measures the annual return on a real estate investment. Formula: Cap Rate = NOI / Property Value * 100. Example: $50k NOI, $500k property = 10% cap rate. Higher cap rate = higher return but often higher risk. Used to compare properties.

What is a good cap rate?

Varies by location and property type. Urban/low-risk: 4-6%. Suburban: 6-8%. Rural/high-risk: 8-12%+. Class A properties: 4-6%. Class C: 8-10%+. Higher cap rates may indicate distressed areas or properties needing work. Compare to local market averages.

What is NOI (Net Operating Income)?

NOI = Gross Rental Income - Operating Expenses. Include: property taxes, insurance, maintenance, property management, utilities (if owner-paid), HOA. EXCLUDE: mortgage payments, depreciation, income taxes, capital improvements. NOI is income before financing costs.

How is cap rate different from ROI or cash-on-cash return?

Cap Rate: NOI/value (ignores financing, shows property performance). ROI: total return including appreciation and equity. Cash-on-Cash: annual cash flow/cash invested (includes financing impact). Cap rate is for property comparison; cash-on-cash for actual investor returns.

Can I use cap rate to estimate property value?

Yes! Property Value = NOI / Cap Rate. Example: $60k NOI, market cap rate 8% → Value = $60k / 0.08 = $750k. This is the "income approach" to valuation. Compare to comps. If market cap rate is 7%, your property with 10% cap may be undervalued.