Cap Rate Calculator
Measure a property's return as a cap rate — its net operating income divided by its value — so you can size up deals on the same scale.
How it works
Cap rate strips a property down to two numbers: the income it throws off after running costs, and what it's worth. Take $18,000 of gross income, knock off $6,000 in operating expenses, and you're left with $12,000 of net operating income. Divide that by a $240,000 value and you get a 5% cap rate.
The point is comparability. A cap rate lets you line up a duplex, a strip mall, and an apartment building side by side, ignoring how each one is financed. Higher cap rates usually mean more income per dollar of price — but often more risk or work to go with it.
One thing cap rate deliberately leaves out is your mortgage. It measures the property itself, not your loan, which is why two buyers can pay the same price and see the same cap rate while earning very different cash returns depending on how much they borrowed.
Frequently asked questions
What is net operating income?
NOI is the income a property generates after operating expenses but before mortgage payments and income tax. Take the rent and any other income, then subtract costs like taxes, insurance, upkeep, and management fees.
Is a higher cap rate better?
Not automatically. A high cap rate means more income relative to price, which sounds great, but it often signals a riskier location, older building, or shakier tenants. Lower cap rates tend to come with steadier, more expensive properties.
Why doesn't cap rate include the mortgage?
Cap rate is meant to describe the property on its own, independent of how any one buyer finances it. To fold in your loan and see the return on the actual cash you put down, use a cash-on-cash return calculation instead.