Cap Rate Calculator

How to Use This Cap Rate Calculator

Enter your property's annual net operating income (NOI) and its current market value. NOI is your total rental income minus operating expenses: exclude mortgage payments and depreciation. The calculator instantly shows your cap rate as a percentage. Use this to compare different properties on an apples-to-apples basis regardless of financing.

Cap Rate Formula

The capitalization rate measures a property's expected annual return based on its current market value. A higher cap rate means higher potential returns but may also indicate higher risk.

Worked Example

Say you own a duplex that generates $36,000 in annual rent. After paying $12,000 in operating expenses (insurance, property tax, maintenance, property management), your NOI is $24,000. If the property is worth $300,000, your cap rate is $24,000 / $300,000 = 8.0%. This means you're earning an 8% annual return on the property's value, before financing costs.

What is a Good Cap Rate?

Cap rates vary significantly by market, property type, and risk level. In major metros like San Francisco or New York, cap rates of 3-5% are common due to high property values. In smaller cities and secondary markets, 6-10%+ cap rates are achievable. As a general benchmark: below 4% is low-return (but potentially lower risk in appreciating markets), 5-7% is average, and 8%+ is considered strong. Short-term rentals (Airbnb) often have higher cap rates but also higher operating expenses and more volatility.

Factors That Affect Cap Rate

Several factors influence cap rate. Location is the biggest: properties in high-demand urban areas typically have lower cap rates because property values are high relative to rents. Property condition matters: a well-maintained property commands higher rent and has lower repair costs, improving NOI. Vacancy rate directly reduces your effective income and therefore your cap rate. Property type affects it too: single-family homes often have different cap rates than multi-family or commercial properties. Market conditions like interest rates influence property values, which in turn affect cap rates. Finally, operating expense efficiency matters: keeping costs like insurance, maintenance, and property management lean improves your NOI and cap rate.