Cap Rate Calculator
The property yield before the mortgage.
Cap Rate Calculator
NOI = gross rent x (1 - vacancy) - operating expenses; cap rate = NOI / price.
Calculated instantly
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What This Calculator Does
The Cap Rate Calculator converts gross rent, vacancy, operating expenses, and price into net operating income and a capitalization rate. It also shows the value implied by a target cap rate, which is how buyers and sellers test a price against a required yield.
How It Works
Gross rent is reduced by a vacancy and credit loss allowance, then operating expenses are subtracted to get net operating income. Dividing NOI by the property price gives the cap rate. Rearranging the same relationship, NOI divided by a target cap rate gives the price that would produce that yield. The expense ratio shows how much of gross rent is consumed by vacancy and operating costs.
Example
A $500,000 property with $60,000 gross rent, 5 percent vacancy, and $18,000 operating expenses has NOI of $57,000 - $18,000 = $39,000. The cap rate is 7.8 percent. At a 7 percent target cap, the same NOI supports a value of $557,143.
Formula
gross rent x (1 - vacancy) - operating expensesNOI / property priceNOI / target cap rate(operating expenses + vacancy loss) / gross rentReading the Results
Net operating income
Income after vacancy and operating expenses, before debt service. It is the numerator that drives both cap rate and value.
Cap rate
NOI as a percentage of price. It is an unlevered yield, so it does not reflect the mortgage or the investor tax position.
Value at target cap
The price that would deliver your target yield at the current NOI. A seller asking above this is pricing at a lower cap rate than you require.
Sources and References
Appraisal Institute - The Appraisal of Real Estate
Direct capitalization and net operating income
The standard appraisal text for the income approach and cap rate derivation.
CCIM Institute - Commercial Real Estate Financial Analysis
NOI, cap rate, and property valuation
Industry guidance on applying cap rates consistently across comparable properties.
References identify the method or data behind this calculator. Where a standard or tariff changes, the current edition applies, and the assumptions stated above take precedence over a remembered figure.
Frequently Asked Questions
What is a good cap rate?
It varies by property type, location, age, tenant quality, and interest rates. A stable leased asset in a strong market often trades at a lower cap rate than a tired property in a weak one. Compare cap rates for genuinely similar properties and check what the NOI excludes.
Does cap rate include the mortgage?
No. Cap rate is unlevered: it uses NOI before debt service. That is deliberate, because it lets buyers compare properties regardless of financing. The levered return is cash-on-cash return, which subtracts mortgage payments from NOI.
What belongs in operating expenses?
Recurring costs of running the property: property tax, insurance, maintenance, repairs, management, utilities paid by the owner, and a reserve for turnover. Exclude mortgage principal and interest, income tax, depreciation, and major capital improvements that add value.
Why is my cap rate different from the listing?
Listing cap rates often use pro forma rent, omit a vacancy allowance, or leave out reserves and management. Recalculate from actual trailing income and a full expense list. A small difference in NOI moves the cap rate meaningfully at low yields.
Can I use cap rate for a single-family rental?
Yes, but it is less standardized than for commercial property. Residential buyers often focus on gross rent multiplier, cash-on-cash return, and comparable sales. Cap rate is still useful for comparing the unlevered yield of two rentals with similar expense structures.