Cap Rate Calculator

Use this cap rate calculator to turn a property's net operating income and value into a capitalization rate. Compare income properties on a like-for-like basis.

What it does

The Cap Rate Calculator shows a property's annual net operating income as a percentage of its value or purchase price. It is the standard yardstick investors use to compare income properties independently of how they are financed.

Data sources & parameters

This calculator uses standard financial formulas and runs entirely in your browser. It needs no external rate data — your result is computed only from the values you enter above.

We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.

The formula

cap rate = annual net operating income ÷ property value × 100

How it works

You enter the property's value or asking price and its annual net operating income (rent left after operating costs, before mortgage payments). The tool divides income by value and multiplies by 100 to give the capitalization rate as a percentage.

Where it is used

Comparing the yield of two or more income properties on a like-for-like basis
Estimating a fair price from a target cap rate and known income
Judging whether an asking price is high or low for its rental income

Worked example

A property priced at $500,000.00 produces $35,000.00 of net operating income each year. Dividing income by price gives a cap rate of …, the annual return before financing and taxes.

What the cap rate calculator does

Enter a property's value or asking price and its annual net operating income, and the cap rate calculator returns the capitalization rate: the income the property produces as a percentage of its price. It is the most common shorthand for comparing income properties and a quick first filter when screening deals or judging an asking price.

How the cap rate works

The cap rate is the annual return the property's income would give if you bought it outright for cash: net operating income divided by value, as a percentage. Net operating income is rent and other income after operating expenses such as management fees, repairs, insurance and property taxes, but before any mortgage payment. Because financing is excluded, a cash buyer and a borrower looking at the same building see the same cap rate.

A property priced at 500,000 with 35,000 of net operating income has a cap rate of 7 percent. A higher price lowers the cap rate; higher income raises it. Lower the price to see the cap rate a lower offer would give, or raise the income to model cutting expenses or lifting rents.

Why investors use it

Financing, tax position and personal circumstances vary between buyers, but the income a building produces relative to its price belongs to the property itself, so cap rate lets you compare very different properties side by side. It also checks price: if comparable buildings in an area sell at around 6 percent, a listing at 4 percent looks expensive for its income, while one at 8 percent deserves a closer look, either as a bargain or a sign of hidden risk.

Estimating value from a cap rate

Since cap rate equals income divided by value, value equals income divided by cap rate. If similar properties trade at 7 percent and a building earns 42,000 of net operating income, 42,000 divided by 0.07 suggests a value near 600,000. Appraisers and investors use this to test asking prices, and small changes in the assumed market cap rate move the implied value a lot, so local norms matter.

What cap rate leaves out

It says nothing about your own cash return once a mortgage is involved; cash-on-cash return covers that. It is only as good as the income figure, so optimistic rents or understated expenses can make a weak deal look better. And it is a snapshot that ignores future rent growth, vacancy risk, capital works and the eventual sale price. A slightly lower cap rate on a property with strong rent growth may beat a higher one on a declining building, so check the assumptions behind the income before committing.

Reading cap rates in context

Higher cap rates usually come with more risk: a weaker location, an older building, shorter leases or less reliable tenants. Prime assets in strong markets have lower cap rates because buyers accept a smaller yield for security and growth. Norms vary by market and property type, so compare a cap rate with recent local sales of similar properties, not a universal benchmark.

This article is general information only and is not financial advice.

About This Cap Rate Calculator

Use this cap rate calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.

Frequently asked questions

How does the cap rate calculator work?

You enter the property's value or asking price and its annual net operating income, which is the rent left after operating expenses but before mortgage payments. The calculator divides income by value and multiplies by 100 to give the capitalization rate as a percentage, along with an echo of the figures you entered.

What is a good cap rate?

There is no single right answer because cap rates reflect risk, location, and property type. Lower cap rates usually signal safer, prime assets with strong demand, while higher cap rates often compensate for weaker locations, older buildings, or less certain income. Compare a property against similar assets in the same market instead of a universal target.

Does the cap rate include my mortgage?

No. Cap rate deliberately ignores financing. It measures the return the property itself generates from its income, so two investors paying different amounts of cash and debt still see the same cap rate. To account for your loan, look at cash-on-cash return instead.

What is net operating income?

Net operating income is the rent and other property income that remains after paying operating costs such as management, maintenance, insurance, and property taxes. It excludes mortgage payments, depreciation, and income tax, so it isolates the property's own earning power before financing.

How can I use cap rate to estimate value?

Rearranging the formula, value equals net operating income divided by the cap rate. If similar properties in an area trade at a known cap rate, dividing a property's income by that rate gives an estimate of what it should be worth, which is useful for spotting overpriced or underpriced listings.

Is my data kept private?

Yes. The calculation runs entirely in your browser. Nothing you enter is uploaded, stored, or shared with anyone.

About the author

Written and reviewed by

Taha Kheirandish

Economics student and independent researcher

Taha Kheirandish reads tax codes the way other people read maps — to find out where a system actually leads, not where it claims to go.

He is an economics student, and his work here is comparative by design. A pension deferral bonus in Quebec, a commuting allowance in Germany, a rent-increase ceiling in the Netherlands: each is a decision a government made about how money should move, and each reads differently once you set it beside eight others. He builds and checks these calculators across nine markets from primary sources — the regulation rather than a summary of it, the ministry’s own circular rather than a news item quoting it.

That is the editorial standard of the site as well as his habit. Every rate, threshold and bracket here carries the document it was read from and the date it takes effect, and gets re-checked when the law moves rather than when someone happens to notice.

He is a researcher, not a licensed adviser, and nothing on this site is personal financial advice. It is arithmetic done carefully with its sources shown — so that you can check it, and take it to someone who is.

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