Free cap rate calculator
Find a property's cap rate in two seconds. Enter the gross income, operating expenses, and price — the calculator returns the capitalization rate (NOI ÷ value), the net operating income, and the value the income implies at a market cap rate you set — updated live, as you type.
On this page15 sections
Estimates only, based on the values you enter. Not investment advice.
Results are estimates. Consult a professional.
What is the cap rate (capitalization rate)?
The capitalization rate — almost always shortened to cap rate — is the single number real estate investors use to size up an income property in one line. It is the property's net operating income expressed as a percentage of its price or value: what the building earns each year, before any mortgage, for every dollar you pay for it. A 7% cap rate means the property generates $7 of net operating income annually for every $100 of value. It is the property world's answer to an interest rate on a bond — an at-a-glance yield you can compare across deals — and it is the number this cap rate calculator returns the moment you enter income, expenses, and price.
The cap rate is an unlevered measure — it deliberately ignores how the deal is financed. Two investors buying the same building at the same price get the same cap rate whether one pays all cash and the other borrows 80%. That is exactly what makes it useful for comparing properties: it isolates the asset's earning power from the buyer's financing choices.
The cap rate formula explained
The formula has only two moving parts, but each one carries a definition you have to get right. Net operating income sits on top; the property's value or price sits on the bottom; the result is a percentage.
Because there are three quantities in one equation, you can rearrange it to solve for whichever one you do not know. Investors use all three forms constantly: cap rate = NOI ÷ value to judge a yield, value = NOI ÷ cap rate to price a building from its income, and NOI = value × cap rate to back into the income a property must earn to justify its price.
What NOI includes — and what it excludes
Most cap rate mistakes are really NOI mistakes. Net operating income is income from operations minus the cost of operations — and the word operations is doing a lot of work. It includes the day-to-day cost of running the building and excludes anything tied to how you financed it or how you are taxed personally.
Operating expenses that belong in NOI
- Property taxes — the annual real-estate tax bill.
- Insurance — hazard, liability, and landlord policies.
- Property management — fees, typically 8–12% of collected rent.
- Maintenance & repairs — routine upkeep and turnover costs.
- Utilities — any utilities the owner pays rather than the tenant.
- Vacancy allowance — a reserve for the months a unit sits empty.
- HOA dues, landscaping, snow removal — recurring common costs.
What you must leave out
- Mortgage / debt service — principal and interest are a financing cost, not an operating one. This is the rule people break most often.
- Depreciation — a non-cash tax deduction, not a cash expense.
- Income taxes — these depend on the owner, not the building.
- Capital expenditures — a new roof or HVAC is a capital cost, not an operating expense (though many cautious investors set aside a reserve anyway).
How to calculate cap rate step by step
Calculating a cap rate is a four-step process. Work in annual figures throughout — if you only have monthly rent, multiply by twelve before you start.
- Add up gross annual income. All the rent the property collects in a year, plus any other income such as parking or laundry, before expenses.
- Total the operating expenses. Taxes, insurance, management, maintenance, utilities you pay, and a vacancy allowance — but not the mortgage.
- Subtract to get NOI. Gross income minus operating expenses is your net operating income.
- Divide NOI by the property value. Multiply by 100 to express it as a percentage. That is your cap rate.
A worked example using the cap rate calculator
An investor is weighing a small apartment building listed at $1,000,000. It collects $100,000 a year in rent and costs $30,000 a year to run. Here is how the calculator turns those three numbers into a cap rate.
Step 1 — Find the net operating income
Start with the $100,000 of gross annual rent and subtract the $30,000 of operating expenses. That leaves a net operating income of $70,000 — and, as always, the mortgage plays no part in this figure.
| Line | Amount |
|---|---|
| Gross annual income | $100,000 |
| Operating expenses | −$30,000 |
| Net operating income (NOI) | $70,000 |
Step 1 result: NOI of $70,000.
Step 2 — Divide NOI by the price
Now divide the $70,000 of net operating income by the $1,000,000 price and multiply by 100. The calculator does this instantly as you type each figure.
Now flip the question around. If comparable buildings in this market trade at a 6% cap rate, the same $70,000 of income implies a value of $70,000 ÷ 0.06 = about $1,167,000. At a $1,000,000 asking price, this property is priced to yield more than the market — a sign it may be a relative bargain (or that it carries more risk). The calculator shows that implied value beside your cap rate.
What is a good cap rate by property type and market?
There is no single 'good' cap rate — it is a trade-off between yield and risk, and it shifts with the property type, the market, and where interest rates sit. As a broad rule, most investors view cap rates in the 4–12% range as the normal field of play, with 5–10% the sweet spot for typical commercial deals. Lower cap rates signal safer, higher-priced assets in strong markets; higher cap rates signal cheaper, riskier income.
| Property type / market | Typical cap rate range | What it signals |
|---|---|---|
| Multifamily, major metro | 4% – 5.5% | Low risk, high price, strong demand |
| Long-term single-family rental | 5% – 8% | Solid balance of yield and stability |
| Retail / office, secondary market | 6.5% – 9% | Higher yield for higher risk |
| Short-term / vacation rental | 6% – 10% | More income, more operational work |
| Static or declining market | 8% – 10%+ | Yield must compensate for weak appreciation |
Indicative 2026 ranges; cap rates vary widely by submarket and asset quality.
Notice the inverse pattern: the lower the cap rate, the higher the price for the same income — and usually the safer the asset. A 4% multifamily building in a booming metro can be a better long-term bet than a 10% property in a shrinking town, because part of your return comes from appreciation the cap rate never captures.
Cap rate vs. cash-on-cash return
Cap rate and cash-on-cash return are the two metrics serious investors run on every deal, and they answer different questions. The cap rate is unlevered — it ignores your mortgage and measures the asset itself. Cash-on-cash return is levered — it measures the annual cash you actually pocket after debt service, divided by the cash you actually put in.
| Cap rate | Cash-on-cash return | |
|---|---|---|
| Formula | NOI ÷ property value | Annual pre-tax cash flow ÷ cash invested |
| Financing | Ignored (unlevered) | Included (levered) |
| Best for | Comparing properties on the market | Measuring return on a deal you own |
| Typical 'good' range | 5% – 10% | 8% – 15% |
Cap rate sizes up the asset; cash-on-cash sizes up your position in it.
Use them together. The cap rate tells you whether a property is fairly priced relative to its peers; the cash-on-cash return tells you what that property will do for your wallet once your mortgage and down payment are in the picture. A high cap rate with cheap leverage can produce an even higher cash-on-cash return — which is exactly why the best investors never rely on a single number.
How interest rates move cap rates
Cap rates do not float free of the wider economy — they tend to rise and fall with interest rates. When the yield on safe assets like government bonds climbs, investors demand a higher yield from riskier real estate too, so cap rates push up. Because cap rate and price move in opposite directions for a fixed income, rising rates put downward pressure on property values even when the rent has not changed.
This is the mechanism behind a lot of real-estate cycles. Hold NOI constant at $70,000: at a 5% cap rate the property is worth $1.4 million, but at a 7% cap rate it is worth only $1 million. The income never moved — the required yield did. Watching where cap rates sit relative to bond yields is one of the clearest reads on whether a market is cheap or frothy.
Limitations of the cap rate
The cap rate is a snapshot, not a full underwriting. Its simplicity is its strength and its weakness — a single ratio cannot capture everything that determines whether a deal makes money.
- It ignores financing. Leverage can amplify or sink your actual return; the cap rate says nothing about it.
- It ignores appreciation. A low cap rate in a fast-growing market can beat a high cap rate in a flat one once price growth is counted.
- It is only as good as the NOI. Optimistic rent or understated expenses inflate the cap rate. Always verify the numbers.
- It is a single year. It does not model rent growth, capital expenditures, or a future sale — for that you need a full cash-flow or IRR analysis.
Methodology and sources
This calculator uses the standard definition of the cap rate — net operating income ÷ property value — with NOI defined as gross annual income minus operating expenses, excluding mortgage payments, depreciation, and income taxes. The benchmark ranges by property type are indicative figures synthesised from widely published 2026 commercial-real-estate guidance; cap rates vary by submarket, asset class, and lender, so always confirm against local comparable sales.
Omni Calculator — Cap Rate Calculator (formula and benchmark guidance).Frequently asked questions about the free cap rate calculator
About this cap rate calculator
This cap rate calculator runs entirely in your browser. Every figure you enter stays on your device — nothing is sent to a server, logged, or shared. It subtracts your operating expenses from gross income to get NOI, divides by the property value for the capitalization rate, and divides NOI by the market cap rate you set to show the value that income implies — all updating instantly as you type.
Calculators Cloud offers 400+ free tools with no sign-up. The whole Finance calculators shelf includes Rental property, Real estate, and Mortgage tools alongside this one. Or browse the full calculator directory.