Cap Rate Calculator
Net operating income divided by value: the property world's cash-buyer yardstick. Also runs in reverse — the price a target cap rate justifies for a given income.
The property world's price-to-earnings ratio
Cap rate strips a rental down to its income identity: net operating income divided by value. No mortgage, no buyer's financing cleverness — which is exactly why it lets a cash buyer in Ohio and a leveraged buyer in California argue about the same building in the same language.
Cap rate = NOI ÷ value · Implied value = NOI ÷ target cap rate
Example: $24,000 of gross rent, $7,000 of operating expenses: NOI $17,000. On a $250,000 value that is a 6.8% cap rate. If your market prices at a 6% cap, the same income justifies about $283,000 — the reverse calculation the result offers when you enter a target.
What NOI excludes — memorize the list
Mortgage payments (that's the point), income tax, depreciation, and — in sloppy listings — capital reserves and sometimes management. A seller's 'cap rate' computed on an NOI with missing expenses is marketing; recompute with the full expense list before respecting it, as this form forces you to assemble.
How this is calculated
NOI = annual gross rent − annual operating expenses you enter. Cap rate = NOI ÷ value × 100. The optional reverse: value implied by a target cap = NOI ÷ (target ÷ 100). Vacancy should be netted from the rent figure or included in expenses — either, once; the form's expense label reminds you what belongs.
Frequently asked questions
Why doesn't cap rate include the mortgage?
Because it prices the asset, not your deal. Financing differs per buyer; the building's income productivity does not. Your deal's verdict comes from cash flow and cash-on-cash, its companions on this site.
Higher cap rate always better?
It is higher compensation for something — weaker growth prospects, rougher location, deferred maintenance, or a genuinely mispriced asset. The number opens the investigation; it does not close it.
How do cap rates relate to interest rates?
Loosely, cap rates float above risk-free yields by a risk-and-growth spread. When mortgage rates exceed cap rates ('negative leverage'), borrowing mathematically dilutes returns until prices or rents adjust.
Can I use cap rate on a property I will live in?
Not meaningfully — owner-occupied value includes consumption (living there), which NOI cannot price. Cap rate is an investor's tool for income assets.
Embed this calculator
Writing about money — a blog, a school page, a community site? Put this calculator on your page, free: copy the code below and paste it where you want the calculator to appear. It stays up to date automatically — the small credit line underneath is all we ask in return.
CalcPrincipal