Cap Rate Calculator
Calculate the capitalization rate of an investment property from net operating income and market value.
Property tax, insurance, maintenance, management fees, etc.
Your Results
Enter property details and click calculate.
What This Calculator Does
This capitalization rate calculator helps real estate investors evaluate the potential return of an income-producing property by comparing net operating income to the property market value or purchase price.
The Formula
Net Operating Income (NOI) is the annual income after operating expenses but before mortgage payments. Cap rate represents the rate of return assuming all-cash purchase.
Step-by-Step Example
Calculate NOI
Annual gross rent ($36,000) minus operating expenses ($12,000) = $24,000 NOI.
Enter property value
The current market value or purchase price. Example: $300,000.
Calculate cap rate
$24,000 / $300,000 = 8% cap rate.
Interpret the result
Higher cap rates indicate higher potential returns but often come with more risk. Typical ranges are 4-10%.
Real-World Use Cases
Property Comparison
Compare cap rates across multiple properties to identify the best investment opportunities.
Market Analysis
Track cap rate trends in a market to understand if properties are becoming more or less expensive relative to income.
Offer Pricing
Given a desired cap rate, back into the maximum offer price for a property.
Common Mistakes to Avoid
Using gross income instead of net operating income (NOI).
Including mortgage payments in expenses. NOI is calculated before debt service.
Comparing cap rates across different markets without accounting for location risk, growth potential, and property condition.
Frequently Asked Questions
Accuracy and Disclaimer
Cap rate is one metric among many for evaluating real estate investments. It does not account for financing, appreciation, tax benefits, or property-specific risks. Consult a real estate professional for investment advice.
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