Cap Rate Calculator
Capitalization rate, NOI, and cash flow for rental property.
What it does
Capitalization rate prices rental income like a bond yield: net operating income divided by property price. It strips financing out so buildings compare on operations alone, which is why investors screen with it first.
The tool above takes monthly rent, monthly operating expenses, and price. It returns yearly NOI, the cap rate, and monthly cash flow before debt.
Operating expenses hold tax, insurance, maintenance, vacancy allowance, and management. Mortgage payments stay out by definition, since two buyers finance differently while the building earns the same.
Cap rates read local risk. Stable blue chip blocks trade near four percent while rougher areas print eight plus, and neither is better without the growth and headache context.
How to use
- Enter full market monthly rent, not wishful rent.
- Enter all monthly operating costs except the mortgage.
- Enter the all in purchase price.
- Compare caps across similar blocks before judging.
Formula
- rent - expenses
- Monthly operating cash before debt service.
- x 12
- Yearly NOI from monthly flow.
- / price
- Yield on the purchase amount.
Cash on cash return differs: it divides leveraged cash flow by down payment. Cap rate stays unleveraged by design.
Worked example
Example: $2,000 rent, $800 costs, $300,000 price
Rent 2,000 a month, expenses 800, price 300,000.
- Monthly flow: 2,000 - 800 = $1,200.
- NOI: 1,200 x 12 = $14,400.00 a year.
- Cap: 14,400 / 300,000 = 0.048, shown as 4.8%.
- With a $1,000 mortgage, cash flow after debt is $200 a month.
Reference table
| Cap rate | Reads as | Context |
|---|---|---|
| Under 4% | Pricey | Prime areas, low risk, slow growth of yield |
| 4 to 6% | Balanced | Typical residential rentals |
| 6 to 8% | Value | Higher risk or weaker markets |
| Over 8% | Caution | Verify rents, costs, and area trend |
Limits
- Unleveraged only. Mortgages reshape cash flow after.
- Ignores appreciation, tax, and rent growth.
- Expense guesses move caps a lot. Verify each line.
- Single year snapshot. Markets reprice yearly.
Common mistakes
- Including mortgage payments in NOI.
- Skipping vacancy and maintenance allowances.
- Using pro forma rents instead of collected ones.
- Comparing caps across different cities blindly.
- Ignoring property tax reassessment after purchase.
Try it yourself
Quick checks. Answers sit tucked under each question.
NOI $12,000 on $200,000. Cap?
12,000 / 200,000 = 6%.
Price for $18,000 NOI at 6% cap?
18,000 / 0.06 = $300,000.
Questions
What is a good cap rate?
Context decides. Four to six percent suits many residential deals; higher caps pay for higher risk.
Does mortgage affect cap rate?
No. NOI excludes debt service, so financing never enters the cap.
Cap rate vs cash on cash?
Cap is unleveraged yield on price. Cash on cash divides financed cash flow by cash invested.
How do I raise a cap rate?
Raise NOI with rents and cost control, since price is fixed after purchase.
What expenses count?
Tax, insurance, maintenance, vacancy, management, utilities paid by owner. Not mortgages or capex reserves debate aside.
Can cap rates go negative?
Yes when costs beat rent. The tool shows it; walk away or reprice.