Cap Rate Calculator
Calculate a rental property's Net Operating Income and Capitalization Rate.
TL;DR: Cap Rate Calculator is a free, browser-based tool that lets you calculate a rental property's Net Operating Income and Capitalization Rate.
About this tool
Calculate a rental property's Net Operating Income (NOI) and Capitalization Rate (cap rate) from gross rental income, vacancy, operating expenses, and property value. Cap rate is one of the most common quick metrics real estate investors use to compare properties — it expresses a property's annual return as a simple percentage of its price, independent of financing, which is exactly what makes it useful for comparing very different properties on equal footing.
Key Features
- Calculates effective income after vacancy loss
- Calculates Net Operating Income (NOI)
- Calculates cap rate as a percentage of property value
- Deliberately excludes debt service, matching the standard cap rate definition
- Works for any property type — residential rental, multifamily, commercial
- Runs entirely in your browser — no financial details are ever uploaded
How to Use
- Enter the property's gross annual rental income.
- Enter the expected vacancy rate as a percentage.
- Enter annual operating expenses (excluding mortgage payments).
- Enter the property value or purchase price.
- Click Calculate to see NOI and cap rate.
When to use it
- Quickly comparing two or more investment properties on a like-for-like basis
- Checking whether a listed property's advertised cap rate holds up under your own vacancy and expense assumptions
- Estimating a reasonable offer price by working backward from a target cap rate
- Tracking how a property's cap rate would change if rents or expenses shifted
- Getting a quick sanity check before a deeper underwriting exercise
Tips & limitations
- Cap rate deliberately excludes mortgage payments (debt service) — it measures the property's own return, independent of how it's financed, which is exactly why it's useful for comparing an all-cash deal against a leveraged one
- Operating expenses should include property taxes, insurance, maintenance, and property management — but not mortgage principal or interest, which aren't operating expenses in this calculation
- A higher cap rate isn't automatically a better deal — it often reflects higher perceived risk (location, tenant quality, condition), not just a better price
- Cap rate is a snapshot based on current income and expenses — it doesn't account for future appreciation, rent growth, or major capital expenditures like a roof or HVAC replacement
The cap rate formula, worked through
| Step | Calculation | Result |
|---|---|---|
| Effective income | $120,000 × (1 − 5%) | $114,000 |
| Net Operating Income | $114,000 − $40,000 | $74,000 |
| Cap rate | $74,000 ÷ $1,500,000 | 4.93% |
The formula is Cap Rate = NOI ÷ Property Value, where NOI = Effective Gross Income − Operating Expenses, and Effective Gross Income already accounts for expected vacancy loss.
Frequently Asked Questions
- No — cap rate is specifically calculated before debt service (mortgage principal and interest), so it reflects the property's own performance independent of financing. This is what makes it useful for comparing an all-cash purchase against a financed one.
- Property taxes, insurance, maintenance and repairs, property management fees, and utilities the owner pays are typical operating expenses. Mortgage payments, capital improvements, and depreciation are generally excluded from this calculation.
- It varies enormously by market, property type, and risk tolerance — a stable property in a strong market might trade at a lower cap rate (lower risk, lower yield), while a higher cap rate often signals higher perceived risk. There's no single universal target.
- Vacancy rate reduces gross income to an "effective" figure before NOI is calculated — a property assumed at 100% occupancy will show a higher NOI and cap rate than the same property with a realistic vacancy assumption applied.
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