Cap Rate Calculator
Your annual snapshot
Before financingCapitalization rate
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Enter your property details to see the numbers.
- Effective gross income
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- Operating expenses
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- Net operating income NOI
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Monthly inputs are converted to annual amounts. Switching periods preserves the annual total.
A simple formula.
A clearer starting point.
Cap rate compares a property’s annual income after operating costs with its value, before financing.
Explore the formulaHow to calculate cap rate
Cap rate = (annual NOI ÷ property value) × 100
Net operating income is effective gross income minus operating expenses.
Cap rate example
A $500,000 property with $60,000 in annual income after vacancy and $15,000 in operating expenses has $45,000 in NOI. Divide $45,000 by $500,000 for a 9% cap rate. Use “Load example” to try these illustrative numbers.
Read the numbers in context.
What belongs in NOI?
Start with rent and other recurring property income after vacancy and credit loss. Subtract the costs of operating the property:
- Property taxes and insurance
- Repairs, maintenance and management
- Utilities paid by the owner
- HOA fees and other recurring costs
Exclude mortgage payments, depreciation, income taxes and major capital improvements.
What does the result tell you?
Cap rate is a screening metric. Compare similar properties in the same location, then consider lease terms, deferred maintenance, tenant concentration, local supply, financing and expected income growth.
A higher number is not automatically a better investment. Cap rate does not measure appreciation or your return after financing.
What is a good cap rate?Cap rate calculator FAQ
What is a good cap rate?
There is no universal target. Lower cap rates often accompany lower-risk locations or newer assets, while higher cap rates can reflect greater risk, management needs, or weaker expected growth. Compare similar properties in the same market and asset class.
Does cap rate include the mortgage?
No. Cap rate measures the property before financing, so mortgage principal, interest, and other debt payments are not operating expenses. This makes properties easier to compare regardless of how each buyer finances them.
Should vacancy be included in NOI?
Yes. Use effective gross income after a realistic vacancy and credit-loss allowance. Using scheduled rent with no vacancy assumption can overstate NOI and the resulting cap rate.
Can cap rate be negative?
Yes. If annual operating expenses exceed effective gross income, NOI and cap rate are negative. That result signals that the property does not cover its operating costs before debt service.
Methodology: California State Board of Equalization · J.P. Morgan’s NOI guide. Educational estimates, not financial advice. Verify property records before investing.