Cap Rate Calculator

- April 02, 2025

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Calculate capitalization rates (cap rates) for real estate investments based on property value and net operating income. This calculator helps you analyze investment property returns and compare different investment opportunities.

Property Information

Property Value:

Income Information

Annual Gross Income:

Expenses

Expense Type:

Annual Amount:

Expense Type:

Annual Amount:

Expense Type:

Annual Amount:

Advanced Options

Decimal Places:

Show detailed calculation

Cap Rate Calculation Results

Cap Rate

0.00%

Property Value

$0.00

Annual Gross Income

$0.00

Total Expenses

$0.00

Net Operating Income

$0.00

Expense Breakdown

#	Expense Type	Annual Amount	% of Gross Income
Total Expenses		$0.00	0.00%

Calculation Information

Cap Rate Formula

Cap Rate = (Net Operating Income / Property Value) × 100%

The cap rate represents the percentage return on a real estate investment property based on the expected income the property will generate.

About Cap Rate

The capitalization rate (cap rate) is a real estate valuation measure used to compare different real estate investments. Cap rate is calculated by dividing a property's net operating income (NOI) by its current market value.

Understanding Cap Rate

Higher Cap Rate: Potentially higher return, but often comes with higher risk.
Lower Cap Rate: Potentially lower return, but often comes with lower risk and higher property value appreciation potential.
Typical Range: Cap rates typically range from 4% to 10% depending on property type, location, and market conditions.

Calculating Net Operating Income (NOI)

Start with the gross annual income the property generates
Subtract all operating expenses (not including mortgage payments, depreciation, or amortization)
The result is your Net Operating Income

Uses and Limitations

Cap rate provides a quick way to estimate the potential return on an investment property
It's best used to compare similar properties in similar locations
Cap rate doesn't account for future property value appreciation or depreciation
It doesn't consider financing costs (mortgage payments), which can significantly impact overall returns
Different property types and locations have different "standard" cap rates

Cap Rate Formula:
Cap Rate = (Net Operating Income ÷ Property Value) × 100%

What Is the Cap Rate Calculator?

The Cap Rate Calculator is a helpful online tool designed to assess the return on investment for rental or income-generating properties. By using basic financial details such as property value, income, and expenses, it computes the capitalization rate (cap rate), a key metric in real estate investing.

This calculator is especially useful for individuals comparing multiple investment opportunities or trying to determine whether a specific property aligns with their financial goals. It complements other tools like a Rental Property Calculator or a Home Loan Estimator by focusing specifically on income performance rather than loan structure.

Why Cap Rate Matters

The cap rate is a fast, objective way to evaluate property profitability. It's widely used by real estate investors to compare properties across markets or locations.

High Cap Rate: Indicates higher potential return (often paired with higher risk)
Low Cap Rate: Suggests lower return but possibly a more stable or valuable property
Benchmark Range: Cap rates typically fall between 4% and 10%

Unlike a Mortgage Payment Tool or Loan Affordability Guide, which focus on financing, the cap rate zooms in on the property’s income potential before financing considerations.

How to Use the Cap Rate Calculator

The calculator walks you through entering key numbers, then shows a detailed breakdown of the results. Here’s how to use it:

Enter the property's market value
Add your expected annual rental income
List annual expenses such as taxes, insurance, and maintenance
Click Calculate Cap Rate to see your result

Key Features

Interactive expense input with ability to add or remove rows
Clear display of total expenses and net operating income (NOI)
Visual and tabular breakdowns for easy interpretation
Detailed explanation of each calculation step
Adjustable decimal places for more precision

This tool pairs well with a Mortgage Cost Planner or Monthly Mortgage Breakdown to get a full picture of both income and financing.

How It Helps

Whether you're considering buying a rental property or comparing several investment options, this calculator simplifies the decision-making process by showing how much income you can expect relative to the property’s cost.

It's particularly useful for:

Analyzing real estate ROI before purchasing
Comparing different property investment options
Understanding the impact of operating expenses on profitability
Estimating property yield without factoring in mortgage payments

Frequently Asked Questions (FAQ)

What is a good cap rate?

A good cap rate varies by location and property type, but generally ranges from 4% to 10%. A higher cap rate can mean better returns but may also signal higher risk or less stable income.

Does the cap rate include mortgage payments?

No. Cap rate focuses on the property's income versus its purchase price. Mortgage payments, interest, and financing are excluded. For a full picture, use a Mortgage Amortization Calculator or Mortgage Payment Guide alongside this tool.

Is this tool only for real estate investors?

Not at all. Anyone considering buying rental property — from first-time landlords to experienced investors — can benefit from using the Cap Rate Calculator.

Can I compare multiple properties?

Yes. Simply calculate the cap rate for each property individually. Use the results to compare income efficiency and decide which property offers the best return.

What if I don’t know all my expenses yet?

You can start with estimates or industry averages and update them later. The tool is flexible and can be refined as more accurate numbers become available.