Cap Rate Calculator United States

This cap rate calculator finds a rental's capitalization rate from price, income and expenses, plus net operating income and gross rent multiplier.

Property purchase price US$ $

Annual rental income US$ $

Annual operating expenses US$ $

Capitalization rate —

Net operating income —

Gross rent multiplier —

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.

What it does

The Cap Rate Calculator shows the capitalization rate of a rental property — its net operating income as a percentage of the purchase price. Enter the property price, the annual rental income and the annual operating expenses to see the cap rate, the net operating income, and the gross rent multiplier.

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.

The formula

Net operating income = rental income − operating expenses; cap rate = net operating income ÷ price × 100; gross rent multiplier = price ÷ rental income

How it works

It subtracts annual operating expenses (taxes, insurance, maintenance, management and vacancy — not the mortgage) from annual rental income to get net operating income, then divides that by the purchase price and multiplies by 100 to express the cap rate. The gross rent multiplier is the price divided by gross annual rent.

Where it is used

Comparing the yield of two rental properties on a like-for-like basis
Estimating value from expected income and a market cap rate
Screening a deal before running full mortgage numbers

Worked example

A $300,000.00 property renting for $30,000.00 a year with $9,000.00 of operating expenses earns … of net operating income — a cap rate of … and a gross rent multiplier of ….

The capitalization rate, or cap rate, is one of the most quoted numbers in commercial and residential rental investing. It expresses a property’s net operating income as a percentage of its price, a measure of the property’s yield that leaves financing out. This cap rate calculator takes the purchase price, annual rental income and annual operating expenses, and returns the cap rate along with the net operating income and the gross rent multiplier.

How the cap rate is calculated

First find net operating income (NOI) by subtracting annual operating expenses from annual rental income. Then divide NOI by the purchase price and multiply by 100. A property bought for $300,000 that earns $30,000 in rent and has $9,000 of operating expenses has an NOI of $21,000, and $21,000 divided by $300,000 is 0.07, a cap rate of 7%.

The same formula works in reverse: divide a known NOI by a market cap rate to estimate what a building is worth. Appraisers use this income approach to value income-producing real estate.

What belongs in operating expenses

An accurate cap rate depends on an accurate NOI, which depends on counting the right expenses. Operating expenses are the ongoing costs of running the property: property taxes, insurance, maintenance and repairs, property management fees, and a realistic vacancy allowance for the weeks a unit sits empty between tenants. Utilities and landscaping belong here too when the owner pays them.

The mortgage does not belong here. Principal and interest are financing costs, and cap rate excludes them. Income taxes and depreciation are left out as well, because they depend on the owner’s tax situation, not the building. A common beginner mistake is subtracting the mortgage payment from income before computing the cap rate, which gives a number that cannot be compared with any published cap rate.

Why financing is excluded

Financing is the largest cash outflow for most investors, yet cap rate ignores it on purpose. Two buyers might purchase the same duplex, one paying all cash and one borrowing 80% of the price. The building has the same rent and operating expenses for both, so it has one cap rate. If the metric included each buyer’s mortgage, the same property would have two cap rates and could not be compared with others.

To measure the return on the cash you actually put in, investors use cash-on-cash return, which accounts for debt service. Cap rate describes the asset, and cash-on-cash return describes your position in it, so use both.

Reading the cap rate and the gross rent multiplier

A higher cap rate means more income per dollar of price, but it usually comes with more risk: an older building, a weaker neighborhood or shorter leases. A lower cap rate often reflects a premium, low-risk property or a competitive market where buyers accept less yield for stability. Compare against similar properties in the same market.

The gross rent multiplier is a faster, rougher check. It divides the price by gross annual rent and ignores expenses. In the example above, $300,000 divided by $30,000 of rent gives a GRM of 10. Use it as a first screen before you have detailed expense numbers, then follow up with the cap rate.

A worked example

A single-family rental is listed at $250,000. It rents for $24,000 a year, and you estimate $6,000 in taxes, insurance, maintenance, management and vacancy. Net operating income is $24,000 minus $6,000, or $18,000. Dividing $18,000 by $250,000 gives 0.072, a cap rate of 7.2%. The gross rent multiplier is $250,000 divided by $24,000, about 10.4. Compared with the earlier example, this property yields slightly more and costs slightly more relative to its gross rent.

Assumptions and limitations

This calculator is a screening tool, not an appraisal. It assumes the rental income and operating expenses you enter are accurate and stabilized, meaning they reflect normal operation and not one unusual year. It does not model financing, income taxes, depreciation, capital improvements or future rent growth, and it counts vacancy only if you include it in your expense figure. Cap rates also move with interest rates and local market conditions. Verify income and expenses with real statements and compare against local comparables before you buy.

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

What is a good cap rate for a rental property?

It depends on the market and the risk. In many US metros, cap rates for stabilized residential rentals fall roughly between 4% and 8%. A lower cap rate usually signals a lower-risk property or a hot market where prices are bid up, while a higher cap rate can mean stronger cash flow or higher risk. Compare a property with similar assets in the same submarket, not a single national number.

What is included in net operating income?

Net operating income is annual rental income minus annual operating expenses. Operating expenses include property taxes, insurance, maintenance and repairs, property management, and a vacancy allowance. They do not include the mortgage payment, income tax, or depreciation. The mortgage is left out because cap rate measures the property itself, independent of how any one buyer finances it.

Why does the cap rate ignore the mortgage?

Cap rate describes the property, not the buyer. Two investors can buy the same building with very different loans, yet the building produces the same net operating income. Excluding financing lets you compare properties on the same basis. To account for a loan, investors use cash-on-cash return, which divides annual pre-tax cash flow after debt service by the cash invested.

What is the gross rent multiplier?

The gross rent multiplier, or GRM, is the purchase price divided by gross annual rent, before any expenses. A GRM of 10 means the price equals ten years of gross rent. Because it ignores operating costs, GRM is rougher than cap rate, but it is useful as a first-pass comparison when expense figures are not yet available.

How do I use a cap rate to estimate value?

If you know a property's net operating income and the typical market cap rate for comparable properties, divide the net operating income by that cap rate. For example, an NOI of $21,000 at a market cap rate of 7% implies a value of about $300,000. Appraisers and investors use this to work back to a price from income.

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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