Free calculator
Cap Rate Calculator
Compare rental properties by their income against their price, before financing.
Try it now
Estimates for planning only. Not financial or tax advice.
What to enter
- Purchase price or value: the asking price for a deal, or a current estimate for a property you own.
- Yearly rental income: twelve months of rent plus other income, minus a vacancy allowance.
- Yearly operating expenses: property taxes, insurance, repairs, reserves, management, utilities you pay, and HOA dues. Leave out mortgage payments and depreciation.
Tip: if a listing shows a cap rate, ask how it was worked out. Sellers sometimes leave out vacancy, management, or reserves, which makes the cap rate look better than it is.
The cap rate formula
Cap rate = net operating income ÷ property value (or purchase price).
Net operating income (NOI) is yearly rental income minus yearly operating expenses: taxes, insurance, repairs, management, utilities you pay, HOA dues, and reserves. It does not include mortgage payments, depreciation, or income taxes. That is why the cap rate lets you compare properties on equal terms, whatever the financing.
A worked example
A duplex is listed at $250,000. It brings in $21,600 a year in rent, and operating expenses are $7,800. NOI is $13,800, and the cap rate is $13,800 ÷ $250,000 = 5.5%.
If a similar duplex down the street has a 6.5% cap rate at the same price, it produces about $2,500 more NOI a year. That is the kind of comparison the cap rate is built for.
What is a good cap rate?
Cap rates vary by market, property type, and condition. Expensive, fast-growing cities often show lower cap rates because buyers pay more for expected growth; smaller markets often show higher cap rates with slower growth. Rather than chasing a single number, compare properties in the same area and check what nearby sales imply.
A higher cap rate means more income for the price, but it can also signal more risk: an older building, a weaker location, or rents that are hard to collect.
Cap rate vs. cash-on-cash return
The cap rate ignores financing. The cash-on-cash return looks at what you earn on the cash you put in, after the loan payment. Use the cap rate to compare properties and the Cash-on-Cash Return Calculator to judge a specific deal with your financing. The Rental Property ROI & Cash Flow Analyzer shows both, plus DSCR and break-even occupancy, for up to three deals at once.
Track it across your portfolio
Once you own a few rentals, the Multi-Property Portfolio Dashboard works out each property’s cap rate from this year’s real numbers and ranks your properties against your target. See all investing templates.
Questions landlords ask
Does cap rate include the mortgage?
No. The cap rate uses net operating income before any loan payments, so you can compare properties regardless of how they are financed.
Should I use the purchase price or the current value?
Use the purchase price when analyzing a deal. For a property you already own, use a current value estimate to see how it performs today.
Why does my cap rate look high?
Check that you included every operating expense, including vacancy, repairs, reserves, and management, even if you manage the property yourself.
Can I use cap rate for a single-family rental?
Yes. It is most useful when you compare similar properties in the same area, whatever their size.