Free tool — cap rate calculator

Cap rate calculator.
NOI in, cap rate out.

Cap rate = net operating income ÷ purchase price. It prices the building on its own income, with the loan left out on purpose — which is what lets you compare a duplex in one metro against a single-family in another. Enter the price, the annual rent, a vacancy allowance and your operating expenses, and the number below updates as you type.

property inputs

expense input

purchase price ($)

gross annual rent ($)

vacancy (%) · lost rent

annual operating expenses ($) · no mortgage

annual capex reserve ($) · optional

There is no interest rate or loan field here, and that is the point: cap rate measures the property, not your financing. To see what the cash you actually put in earns after the mortgage, run cash-on-cash. Keep the capital reserve in the number even in years you spend nothing — roofs and HVAC arrive on their own schedule. Property tax and insurance assumptions vary by state, so confirm both with a local quote and a CPA before you price a deal off this.

cap rate

6.08%

typical range

Around 5-7% is where stabilized rentals commonly trade in a lot of markets — a normal number rather than a bargain or a warning. Cap rates are local — compare this against recent sales of similar buildings in the same submarket before calling it good or bad.

annual breakdown

gross annual rent$30,000

vacancy loss($1,800)

operating expenses($11,800)

capex reserve($1,800)

net operating income$14,600

monthly NOI

$1,217

before any loan payment

effective gross income

$28,200

rent after vacancy

expense ratio

48%

expenses + reserve ÷ collected rent

price for a 7% cap

$208,571

what this NOI supports at 7%

Cap rate · 101

One ratio.
No debt in it.

Cap rate is the closest thing real estate has to a price tag you can compare across deals. Get the three inputs right and it does exactly that.

The formula.

NOI ÷ purchase price. NOI is collected rent minus operating expenses — and the mortgage is excluded on purpose. Two buyers, two different loans, one building: same cap rate. That exclusion is the number one point of confusion on this metric, and it is also the entire reason the ratio is useful. The full sequence from rent to NOI to return is walked step by step in how to analyze a rental property.

numeratorNOI (after expenses)

denominatorpurchase price

excludeddebt service

answera % per year

What good looks like.

A cap rate is a market price, not a grade. Stabilized rentals in a lot of metros land around 5-7%. Under about 4% usually means the buyer is paying for appreciation rather than income. Above about 8% usually means the market is charging for something — condition, turnover, or a thinner tenant pool. The bands below are illustrative and vary widely by market and property type.

under 4%appreciation play

5 – 7%typical, stabilized

8%+risk priced in

real benchmarklocal sales

The mistake.

Two errors ruin the number. The first is dividing gross rent by price instead of NOI, which inflates the result by roughly half. The second is leaving capital expenditure out: a roof, an HVAC system and a turnover are real annual costs even in the years you do not write the check. Budget a reserve and keep it inside NOI. What belongs in that line is broken down in rental property operating expenses.

wronggross rent ÷ price

forgottencapex reserve

forgottenvacancy

rightNOI ÷ price

FAQ

Before you price it.

The four questions that decide whether your cap rate means anything.

— The formula —

How do you calculate cap rate on a rental property?

Cap rate = net operating income ÷ purchase price. NOI is the rent you actually collect after vacancy, minus operating expenses — taxes, insurance, management, maintenance, and a capital reserve. The mortgage is deliberately left out, which is why two buyers with two different loans get the same cap rate on the same building.

— What is good —

What is a good cap rate?

It depends on the market far more than on the number. Stabilized rentals in many metros trade somewhere around 5-7%. Under roughly 4% usually means you are buying appreciation and accepting thin income. Around 8% and up usually comes with something attached — older condition, a softer submarket, or heavier turnover. Compare against recent sales of similar buildings nearby, not against a national average.

— Mortgage in or out —

Does cap rate include the mortgage?

No. Cap rate measures the property, not your financing, so principal and interest never enter the formula. That is the single most common mistake on this metric. If you want the return on the cash you actually put in, run cash-on-cash instead — that one does include the loan payment.

— Cap rate vs cash-on-cash —

Cap rate vs cash on cash — which one should I use?

Both, for different jobs. Cap rate prices the asset and lets you compare buildings and markets on equal footing, because no loan is involved. Cash-on-cash tells you what your down payment earns each year after debt service. A deal can show a healthy cap rate and still return very little cash once the loan is attached, so run the pair before you write a check.

Live · all 50 states

Cap rate on every listing.

Verleon AI underwrites active listings nationwide and scores each one, so cap rate, cash-on-cash and DSCR are already computed before you open the page — with comps and ARV attached.

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