Cap Rate Calculator

Calculate the capitalization rate

The capitalization rate, or cap rate, measures the unleveraged annual return on a real estate investment. It is calculated by dividing the net operating income, the rental income left after operating expenses but before mortgage payments, by the property value or purchase price, expressed as a percentage. A property generating twenty-four thousand in net operating income and valued at four hundred thousand has a cap rate of six percent. This calculator also shows the value the income would imply at other common cap rates, helping you benchmark a price.

The cap rate deliberately ignores financing, so it reflects the property itself rather than how it is funded.

Using cap rates

Investors use cap rates to compare properties quickly and to judge whether an asking price is reasonable for the income a property produces. A higher cap rate means a higher return but often higher risk or a less desirable location, while a lower cap rate suggests a premium, lower-risk property. Local market norms vary widely, so compare a property's cap rate against similar properties in the same area.

Because net operating income excludes mortgage payments and income tax, the cap rate is a property-level metric rather than a measure of your personal return, which depends on financing. All calculation happens locally in your browser.

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