Cap Rate Calculator
The capitalization rate is a property's yearly net operating income as a percentage of its price. It measures the return before financing, which makes it useful for comparing properties.
Enter your figures below. Results update as you type.
Cap rate7.8%
- Net operating income
- $39,000.00
- Expense ratio
- 30%
- Value at a 7% cap rate
- $557,142.86
How the Cap Rate calculation works
Cap rate = net operating income / property price x 100
A $500,000 property with $60,000 of gross rent, 5% vacancy and $18,000 of expenses has net operating income of $39,000 and a cap rate of 7.8%. A buyer wanting 7% would value the same income at $557,143.
Frequently asked questions
What is a good cap rate?
It depends on the market and the risk. Cap rates of 4% to 6% are common in expensive, stable areas, and 7% to 10% in higher-risk or lower-cost markets. A higher cap rate means more income for the price and usually more risk.
Does cap rate include the mortgage?
No. Cap rate uses income before debt payments, so it is the same whether you pay cash or borrow. Use cash-on-cash return to see the effect of financing.
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