Cap Rate Calculator
The capitalization rate (cap rate) is the unleveraged rate of return on a real estate investment — net operating income divided by property value — and because it excludes financing, it lets you compare properties apples to apples regardless of how you'd fund them. This makes it the standard metric investors use to quickly judge whether a deal is priced fairly and to compare opportunities across markets. This calculator computes the cap rate from your property value and net operating income. Enter the property value or purchase price and the net operating income (NOI) — gross rent minus operating expenses, with no mortgage included — and the calculator returns the capitalization rate. Higher cap rates mean more income per dollar invested but often signal more risk (a worse location, an older building, or less stable tenants), while lower cap rates reflect premium, lower-risk properties, so the 'right' rate depends on your risk tolerance and the market. Typical U.S. cap rates range from about 4% (premium, low-risk markets) to 10% (higher-risk), and within a given market, cap rates tend to be consistent for similar properties, which is what makes them useful for spotting under- or overpriced deals. Net operating income is gross rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy), and you exclude the mortgage because cap rate measures the property's unleveraged return, not your financing. Cap rate is different from cash-on-cash return, which includes the mortgage and measures the leveraged return on your actual cash invested. For a primary residence with no rental income, cap rate isn't meaningful, so focus on appreciation and affordability instead. Use this calculator to compare properties regardless of financing, to spot deals that are priced above or below the market's typical cap rate, and to set return expectations before you make an offer.
Cap Rate Calculator
Calculate the capitalization rate to compare investment properties.
Capitalization rate
7.0%
NOI ÷ property value
Property value
$400,000
Net operating income
$28,000
Cap rate measures unleveraged return — it excludes financing, so you can compare properties apples to apples. Higher cap rates mean more income per dollar but often more risk. Typical ranges are 4-10%.
How to Use This Calculator
- 1Enter the property value or purchase price.
- 2Enter the net operating income (NOI) — gross rent minus operating expenses, no mortgage.
- 3Read the capitalization rate.
Why It Helps
- ✓Compares properties regardless of financing.
- ✓Quick unleveraged return measure.
- ✓Standard metric among investors.
- ✓Helps spot under- or overpriced deals.
About This Calculator
The capitalization rate (cap rate) is the unleveraged rate of return on a real estate investment — net operating income divided by property value — and because it excludes financing, it lets you compare properties apples to apples regardless of how you'd fund them. This makes it the standard metric investors use to quickly judge whether a deal is priced fairly and to compare opportunities across markets. This calculator computes the cap rate from your property value and net operating income. Enter the property value or purchase price and the net operating income (NOI) — gross rent minus operating expenses, with no mortgage included — and the calculator returns the capitalization rate. Higher cap rates mean more income per dollar invested but often signal more risk (a worse location, an older building, or less stable tenants), while lower cap rates reflect premium, lower-risk properties, so the 'right' rate depends on your risk tolerance and the market. Typical U.S. cap rates range from about 4% (premium, low-risk markets) to 10% (higher-risk), and within a given market, cap rates tend to be consistent for similar properties, which is what makes them useful for spotting under- or overpriced deals. Net operating income is gross rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy), and you exclude the mortgage because cap rate measures the property's unleveraged return, not your financing. Cap rate is different from cash-on-cash return, which includes the mortgage and measures the leveraged return on your actual cash invested. For a primary residence with no rental income, cap rate isn't meaningful, so focus on appreciation and affordability instead. Use this calculator to compare properties regardless of financing, to spot deals that are priced above or below the market's typical cap rate, and to set return expectations before you make an offer.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial, tax, or investment advice. Results depend on assumptions that may not reflect your actual situation.
Frequently Asked Questions
What is a good cap rate?
Typical U.S. cap rates range from 4% (premium, low-risk markets) to 10% (higher-risk). The 'right' rate depends on your risk tolerance and market.
How is cap rate different from cash-on-cash return?
Cap rate excludes financing (unleveraged). Cash-on-cash includes the mortgage, measuring return on your actual cash invested (leveraged).
What is net operating income (NOI)?
Gross rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy). Exclude the mortgage — that is financing.
Does a higher cap rate always mean a better deal?
Not necessarily. Higher cap rates often reflect higher risk (worse location, older building, unstable tenants). Weigh return against risk.
Can I use cap rate for a property I live in?
Cap rate measures investment income. For a primary residence with no rental income, it is not meaningful; focus on appreciation and affordability instead.
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Written by
James MitchellSenior Financial Analyst & Personal Finance Expert
Certified Financial Planner (CFP) • MBA in Finance, University of Chicago Booth School of Business