Home › Calculators › Cap Rate Calculator
REAL ESTATE · INVESTOR TOOLCap Rate Calculator
What return is this property really producing? Enter its value, rent, vacancy and operating expenses to get net operating income (NOI) and cap rate — with mortgage payments correctly left out, and a side-by-side comparison when you are choosing between two properties.
- 100% free, no sign-up
- True NOI — mortgage excluded
- Full expense breakdown
- Compare two properties
Net operating income divided by the property's value, shown as a percentage.
Effective gross income (after vacancy loss) less all operating expenses.
Loan payments are financing, not an operating expense — cap rate ignores them.
A high cap rate usually means higher income with higher risk; compare locally.
Your property
Comparison mode adds a second property panel and shows both cap rates side by side.
Purchase price, or current market value if you already own it. This is the number NOI is divided by.
Total rent if every unit were occupied, before vacancy loss and before any expenses.
The share of rent you expect to lose to empty units. 5% is a common planning figure — use your market's reality if you know it.
Operating expenses (annual)
Enter each cost as a yearly dollar amount. Everything here reduces NOI.
Management is often around 8–10% of rent — enter the dollar amount, not the percentage. Only count costs the owner pays, not costs tenants pay directly.
Property B — comparison
Same fields, second property. The results panel will show both cap rates and the gap between them.
Please note: this is an estimate from the numbers you enter. Real NOI depends on actual rents, real vacancy and real bills — and a cap rate alone does not capture financing costs, appreciation, tax or risk. Treat the result as a comparison tool, not investment advice.
How this cap rate calculator works
Three steps, in the order the formula runs — nothing hidden, and mortgage payments never enter the math.
Enter value and rent
Property value goes under the line. Gross rent — monthly or annual — goes on top, before anything is taken off.
Work out NOI
Vacancy loss comes off the rent first, giving effective gross income. Then every operating expense comes off. What is left is NOI.
Divide and read it
NOI divided by property value, times 100, is the cap rate. The breakdown table shows every line, so you can check each number.
What counts as an operating expense?
If the cost keeps the property running and rented, it counts. If it is about how you financed or own the property, it does not.
Counts — reduces NOI
- Property taxes and insurance
- Maintenance, repairs and upkeep
- Property management fees
- HOA fees and owner-paid utilities
- Advertising, leasing and other running costs
Does not count — excluded
- Mortgage principal and interest — debt service, never an operating expense
- Your personal income tax
- Depreciation (a paper deduction, not a cash cost)
- One-off capital improvements, like a new roof — these add value, they are not running costs
Worked examples
Three properties, worked through the same formula. Vacancy loss comes off first, then expenses, then NOI is divided by value.
| Property | Value | Effective gross income | Operating expenses | NOI | Cap rate |
|---|---|---|---|---|---|
| Single-family rental | $200,000 | $22,800 | $6,000 | $16,800 | 8.40% |
| Small apartment building | $650,000 | $78,120 | $29,550 | $48,570 | 7.47% |
| Condo with HOA fees | $320,000 | $28,500 | $13,680 | $14,820 | 4.63% |
Example 1: $24,000 of rent, 5% vacancy ($1,200 lost), so $22,800 effective gross income; $6,000 of expenses leaves $16,800 of NOI, and $16,800 / $200,000 = 8.40%. Example 2: $84,000 of rent at 7% vacancy gives $78,120; $29,550 of expenses leaves $48,570, and $48,570 / $650,000 = 7.47%. Example 3: $30,000 of rent at 5% vacancy gives $28,500; $13,680 of expenses (including $3,600 of HOA fees) leaves $14,820, and $14,820 / $320,000 = 4.63%.
Cap rate questions, answered
What is a cap rate?
A cap rate (capitalization rate) is a property's net operating income (NOI) divided by its value, expressed as a percentage. It estimates the annual return a property would produce if you bought it with cash — before mortgage payments, income tax and appreciation.
What is the cap rate formula?
Cap rate = NOI / property value x 100. NOI itself is effective gross income minus operating expenses, and effective gross income is gross rental income minus vacancy loss. So: cap rate = ((gross rent - vacancy loss) - operating expenses) / property value x 100.
What is a good cap rate?
It depends on the market, property type and risk. As a rough educational guide, many properties fall somewhere around 4% to 10% — but that range is typical, not guaranteed. A higher cap rate usually means a higher return with higher risk (for example a weaker market or an older building), while a lower cap rate often means a safer, prime location. Judge a cap rate against similar properties in the same area, never on its own.
Does cap rate include mortgage payments?
No. Mortgage principal and interest — all debt service — are excluded from NOI, so cap rate is calculated before financing. That is deliberate: it lets you compare properties on their own operating performance, whatever loan you might take. If you want your return on the cash you actually put in after a mortgage, use cash-on-cash return instead.
Cap rate vs cash-on-cash return: what is the difference?
Cap rate measures the property itself: NOI divided by the full property value, with no mortgage involved. Cash-on-cash return measures your cash: annual pre-tax cash flow after mortgage payments, divided by the cash you invested (down payment plus closing costs). Use cap rate to compare properties, and cash-on-cash to compare financing options on one property.