The capitalization rate (cap rate) is a property’s net operating income divided by its price: what the income returns before financing. It compares rental properties to each other; the calculator takes rent, vacancy and operating expenses and returns the cap rate, NOI and cash-on-cash figures.
Calculate capitalization rate for investment properties. Find property value from NOI or required NOI for a target cap rate.
Annual income minus operating expenses
Current market value or asking price
Your desired cap rate for analysis
This property meets your 8% target cap rate
Input your annual Net Operating Income (rental income minus operating expenses).
Enter the property's market value or asking price for calculation.
See the cap rate and compare against your target to evaluate the investment.
Cap rate measures a property's potential return independent of financing.
Higher cap rates typically indicate higher risk/return potential.
The formula is two numbers. The work is getting the first one right: net operating income is what the property earns after operating costs and before any mortgage payment.
| Rent, $2,400 a month × 12 | $28,800 |
| Vacancy allowance, 5% of rent | − $1,440 |
| Property taxes | − $3,600 |
| Insurance | − $1,200 |
| Maintenance and repairs | − $1,800 |
| Property management, 8% of collected rent | − $2,189 |
| Other operating costs (HOA, lawn, pest) | − $600 |
| Net operating income (NOI) | $17,971 |
| Cap rate = $17,971 ÷ $285,000 | 6.31% |
The mortgage is not in the table on purpose. Cap rate describes the property, not your financing; two buyers with different loans get the same cap rate on the same house.
Cap rate from NOI and price
Cap rate = NOI ÷ Price × 100
Value from NOI and a target cap rate
Value = NOI ÷ Cap rate
$17,971 at a 6.5% target → $276,477. That is the most you could pay and still hit 6.5%.
NOI a price implies
NOI = Price × Cap rate
In a spreadsheet (Excel or Google Sheets)
=NOI/Price
Format the cell as a percentage. Keep NOI in its own cell built from the rows above, not typed in.
Same arithmetic across a range. Read across a row to see what a price cut does; down a column to see what raising rent does.
| NOI \\ Price | $200k | $250k | $300k | $350k | $400k |
|---|---|---|---|---|---|
| $12,000 | 6.0% | 4.8% | 4.0% | 3.4% | 3.0% |
| $15,000 | 7.5% | 6.0% | 5.0% | 4.3% | 3.8% |
| $18,000 | 9.0% | 7.2% | 6.0% | 5.1% | 4.5% |
| $21,000 | 10.5% | 8.4% | 7.0% | 6.0% | 5.3% |
| $24,000 | 12.0% | 9.6% | 8.0% | 6.9% | 6.0% |
| $30,000 | 15.0% | 12.0% | 10.0% | 8.6% | 7.5% |
| Metric | Formula | What it answers |
|---|---|---|
| Cap rate | NOI ÷ Price | How the property performs regardless of how it is financed. Best for comparing two properties. |
| Cash-on-cash return | Annual cash flow ÷ Cash invested | What your down payment earns after the mortgage. Changes with the loan. |
| Gross rent multiplier | Price ÷ Gross annual rent | A quick screen before you have expense numbers. Ignores costs entirely. |
| ROI | (Gain − Cost) ÷ Cost | Total return over a holding period, including appreciation and sale. Needs an exit assumption. |
A “good” cap rate is only good relative to other properties in the same market and asset class; compare like with like, and treat any table of national ranges as a starting point rather than a verdict.
The capitalization rate, commonly known as cap rate, is one of the most important metrics in real estate investing. It provides a quick way to assess the potential return of an investment property independent of how it's financed. Our free cap rate calculator helps you evaluate properties, compare investments, and determine fair market value based on income potential.
Cap rate serves multiple purposes for real estate investors. First, it allows you to compare properties of different sizes and prices on an equal basis. A $500,000 property with a 6% cap rate and a $200,000 property with a 6% cap rate offer the same relative return on investment. Second, cap rate helps you quickly assess whether a property meets your investment criteria without getting into detailed financing calculations.
Generally, higher cap rates indicate higher risk or less desirable locations, while lower cap rates suggest lower risk and better locations. Class A properties in prime markets may trade at 4-5% cap rates, while Class C properties in secondary markets might trade at 8-10% or higher. Understanding this relationship helps you evaluate whether you're being adequately compensated for the risk you're taking.
Cap rate is a fundamental concept tested on real estate licensing exams across all states. You'll need to know how to calculate cap rate from NOI and property value, how to find property value given NOI and cap rate, and how to interpret what different cap rates mean. Practice these calculations regularly to build speed and accuracy for exam day.
Master cap rate calculations with our practice exam questions.
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Key facts
There is no universal good cap rate; it moves with the market and the risk. Stable, well-located properties trade at lower cap rates, and older or riskier ones at higher rates, because buyers demand more return for more risk. Compare a property with recent sales of similar buildings nearby, not with a national figure.
No. The cap rate uses net operating income, which is income after vacancy and operating expenses but before debt service, so it describes the property, not the financing. Cash-on-cash return is the figure that includes the loan payment and measures the return on the cash actually invested.
Value equals net operating income divided by the cap rate. If a building earns $60,000 of NOI and similar buildings sell at a 6% cap rate, the indicated value is 60,000 ÷ 0.06 = $1,000,000. The same formula gives the NOI a price requires: value × cap rate.
Last reviewed September 8, 2026 by the EstatePass editorial team. Formulas and program limits are checked against the published rules; figures on this page are arithmetic, not market statistics.
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