Cap rate calculator
Estimate the capitalization rate of a rental property: the yearly net operating income it earns as a share of its value. Enter the price, the rent and the operating expenses.
Your results
EstimateCap rate: 7.40%
- Net operating income
- $22,200.00
- Effective gross income
- $34,200.00
Results are estimates for planning only. They are not legal, tax or investment advice, and they apply no state or local rules. Check your lease, your local laws and a qualified professional before you rely on a number.
How cap rate is calculated
Cap rate = net operating income / property value
Net operating income (NOI) is the rent you expect to collect after vacancy, minus operating expenses such as property taxes, insurance, repairs, management and owner-paid utilities. Mortgage payments, depreciation and income taxes stay out of NOI.
Because cap rate leaves financing out, it compares properties on the same footing whether they are bought with cash or a loan. A higher cap rate means more income for each dollar of value.
Worked example
A $300,000 rental brings in $36,000 a year in rent, you plan for 5% vacancy, and operating expenses come to $12,000 a year.
- Vacancy: $36,000 x 5% = $1,800, so effective gross income is $34,200.
- NOI: $34,200 - $12,000 = $22,200.
- Cap rate: $22,200 / $300,000 = 0.074.
The estimated cap rate is 7.40%.
Frequently asked questions
What is a cap rate?
A capitalization rate is a property's annual net operating income divided by its value or price. It is a quick way to compare the income a property earns against what it costs.
Does cap rate include the mortgage?
No. Cap rate uses net operating income, which leaves out loan payments. To see the return on the cash you put in after the mortgage, use a cash on cash return calculator.
What is a good cap rate?
It depends on the market, the property type and the risk you accept. Cap rates vary widely by city and over time, so compare a property against recent sales of similar properties nearby.
Should I use the purchase price or the current value?
Use the purchase price to judge a deal you are considering. Use a current market value to see how a property you own performs today.
Your real income and expenses, from your bank feed
KeyRing pulls transactions from your bank feed and matches each one to a property, with suggestions you confirm, so your cap rate starts from real numbers. Your first subscription starts with a 14-day free trial.