Cap Rate Calculator

Calculate capitalization rate to evaluate and compare real estate investments. Analyze NOI, expenses, and property valuation.

Last Updated: June 14, 2026

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Property Details

Property Value / Purchase Price

Annual Gross Rental Income

Monthly rent × 12

Vacancy Rate (%)

Annual Operating Expenses

Property Taxes

Insurance

Maintenance & Repairs

Property Management

Usually 8-10% of rent

Utilities (if landlord-paid)

HOA / Condo Fees

Other Expenses (legal, advertising, etc.)

Cap Rate Analysis

Capitalization Rate

7.26%

Good (Average)

Net Operating Income

$32,680

Gross Rent Multiplier

9.38x

Gross Rental Income$48,000

Vacancy Loss (5%)-$2,400

Effective Gross Income$45,600

Total Operating Expenses-$12,920

Expense Ratio28.3%

Quick Valuation Tool

At a 6% cap rate, this NOI would value the property at $544,667

At a 8% cap rate, this NOI would value the property at $408,500

Formula

Cap Rate = NOI ÷ Property Value

Cap Rate = $32,680 ÷ $450,000 = 7.26%

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What is Cap Rate?

The capitalization rate (cap rate) is one of the most important metrics in real estate investing. It measures the expected rate of return on an investment property based on the income it generates, independent of how the property is financed.

Cap rate allows investors to quickly compare properties across different markets and price points. A $100,000 property with a 10% cap rate and a $1,000,000 property with a 10% cap rate offer the same return on investment (before financing), making cap rate an essential tool for property analysis.

Typical Cap Rates by Property Type

Property Type	Typical Cap Rate Range	Risk Level
Class A Multifamily (Prime Markets)	3.5% - 5.0%	Low
Single Family Rentals	5.0% - 8.0%	Low-Medium
Retail (NNN Leased)	5.5% - 7.5%	Medium
Industrial / Warehouse	5.0% - 7.0%	Medium
Office Buildings	6.0% - 9.0%	Medium-High
Value-Add / Distressed	8.0% - 12%+	High

The Cap Rate Formula

The capitalization rate is calculated by dividing the property's Net Operating Income (NOI) by its current market value or purchase price.

NOINet Operating Income (Gross Income - Vacancy - Operating Expenses)

Property\;ValueCurrent market value or your purchase price

Manual Step: Calculating Cap Rate on a Duplex

Suppose you are looking to buy a duplex for $300,000. It generates $30,000 a year in rent, but you expect to spend $5,000 on taxes, insurance, and maintenance, plus $1,000 on vacancy loss.

1. Calculate Gross Income

Start with your total expected rental income.

\$30,000

2. Subtract Expenses & Vacancy

This gives you your Net Operating Income (NOI).

\$30,000 - \$5,000 - \$1,000 = \$24,000

3. Divide NOI by Property Value

Divide the NOI by the purchase price.

\frac{\$24,000}{\$300,000} = 0.08

Result

Multiply by 100 to get a cap rate of 8%.

8\%

Why Use This Calculator?

Manually calculating cap rate requires tracking all operating expenses, accounting for vacancy, and understanding what costs to include or exclude. This calculator does the heavy lifting, helping you analyze properties quickly and accurately. Use it to compare investment opportunities, determine if a property is fairly priced, or estimate what you should offer based on your target cap rate.

Frequently Asked Questions

What is a cap rate?

Cap rate (capitalization rate) is the ratio of a property's Net Operating Income (NOI) to its current market value or purchase price. It represents the expected rate of return on a real estate investment, independent of financing. A higher cap rate indicates higher potential returns but often comes with higher risk.

What is a good cap rate for investment property?

Cap rates vary significantly by market, property type, and condition. Generally: 8-12% is excellent but may indicate higher risk, 5-8% is good for most markets, 4-6% is common in premium areas like major cities, and below 4% is typical for Class A properties in prime locations. The 'right' cap rate depends on your investment strategy and risk tolerance.

What is NOI (Net Operating Income)?

Net Operating Income is the annual income generated by a property after deducting all operating expenses, but before debt service (mortgage payments). It includes rental income minus vacancy, property taxes, insurance, maintenance, management fees, and other operating costs. NOI does not include mortgage payments, capital expenditures, or depreciation.

How do I calculate property value using cap rate?

You can estimate a property's value using the formula: Property Value = NOI ÷ Cap Rate. For example, a property generating $50,000 NOI in a 6% cap rate market would be worth approximately $833,333. This is useful for comparing properties or determining if a listing is fairly priced.

What is the Gross Rent Multiplier (GRM)?

The Gross Rent Multiplier is a quick valuation tool calculated as: Property Price ÷ Annual Gross Rent. A GRM of 10 means the property costs 10 times its annual rent. Lower GRMs generally indicate better value, though this metric ignores expenses and should be used alongside cap rate for full analysis.

Why doesn't cap rate include mortgage payments?

Cap rate measures the property's performance independent of financing because each investor may have different loan terms, down payments, and interest rates. This allows for apples-to-apples comparisons between properties. To account for financing, use Cash-on-Cash Return or ROI calculations instead.