Finance tools
Cap rate calculator
Free cap rate calculator, capitalization rate calculator, and rental property cap rate calculator for US real estate. Use the cap rate formula or reverse cap rate calculator modes to find unlevered yield, max price at a target cap, or required NOI. Enter annual NOI directly, or build NOI from gross rent, vacancy, and operating expenses. Live results, NOI bridge, illustrative benchmarks, and ungated CSV/PDF export.
What cap rate means
Cap rate (capitalization rate) is annual net operating income (NOI) divided by property value, expressed as a percentage. It is an unlevered first-pass yield: it ignores mortgage payments, income taxes, and depreciation.
Investors use cap rate to compare properties on the same income-over-price scale before diving into financing, renovation risk, or lease-up timelines.
Three solve modes
Find cap rate, max property value, or required NOI at a target rate.
Build NOI from rent
Optional income and expense lines when you do not have a T-12 yet.
NOI bridge table
See gross income, vacancy, expenses, and NOI in one view.
CSV/PDF export
Download assumptions and results without an email gate.
Related finance tools: break-even calculator, burn rate calculator, employee cost calculator, and compound interest calculator.
Cap rate formula
The standard cap rate formula is:
Cap rate formulas
Cap rate (%) = Annual NOI ÷ Property value × 100Property value = Annual NOI ÷ (Cap rate ÷ 100)
Required NOI = Property value × (Cap rate ÷ 100)
Use the same annual NOI definition when you compare properties or reverse-solve for value. Mixing monthly rent with an annual price without converting periods will distort the rate. For a full rental walkthrough, see the worked example below.
Worked example: rental property cap rate
Here is how to calculate cap rate on a rental property when you start from rent and expenses instead of a finished NOI line on a T-12.
| Line item | Annual amount |
|---|---|
| Gross rental income | $72,000 |
| Vacancy and credit loss (5%) | −$3,600 |
| Effective gross income | $68,400 |
| Operating expenses (tax, insurance, maintenance, management, HOA, utilities) | −$21,360 |
| Net operating income (NOI) | $47,040 |
| Property value (purchase price) | $650,000 |
| Cap rate | 7.24% |
Cap rate = $47,040 ÷ $650,000 × 100 = 7.24%. Load the same assumptions with the classic SFR preset or enter your rent roll in Build NOI mode. If you already know NOI and a market cap, switch to Max price to run a reverse cap rate valuation.
What counts in NOI?
| Included in NOI | Not included in NOI |
|---|---|
| Property tax and insurance | Mortgage principal and interest |
| Recurring maintenance and management | Income tax and depreciation |
| Owner-paid utilities and HOA | One-time capital improvements |
| Vacancy and credit loss | Debt service coverage (use a DSCR tool instead) |
Analysts sometimes debate whether replacement reserves belong in NOI. Pick one convention and apply it consistently when you compare properties and listing cap rates.
What is a good cap rate?
There is no universal good cap rate. Higher cap rates often mean higher perceived risk or weaker location; lower caps can reflect stable cash flow in prime markets. Context matters: asset class, lease terms, condition, and how you finance the deal.
| Asset type (illustrative 2026) | Typical cap rate range |
|---|---|
| Single-family rental (US metro) | 4% – 7% |
| Small multifamily (2–4 units) | 5% – 8% |
| Class B office | 6% – 9% |
| Neighborhood retail | 7% – 10% |
Treat ranges as screening bands, not buy or sell signals. A 6% cap rate on stabilized multifamily may be competitive in a core market; a 7.5% cap rate often signals higher perceived risk or a secondary location — context matters more than the number alone. Verify income, expenses, and comparable sales with current market data before you act.
Reverse cap rate calculator (max price)
A reverse cap rate calculator solves for property value when you know annual NOI and a target cap rate from the market or your return hurdle:
Reverse cap rate formula
Property value = Annual NOI ÷ (Cap rate ÷ 100)Example: $60,000 NOI at a 6% market cap → $1,000,000 implied value. Use the Max price mode in this tool — it is the same math as a reverse cap rate calculator for commercial real estate or residential rentals.
Reverse cap rate is useful when you are underwriting acquisitions: set the cap rate from recent comparable sales, plug in your NOI, and see whether the asking price is above or below the implied value.
Cap rate vs cash-on-cash and DSCR
Cap rate is unlevered — it ignores financing. Cash-on-cash return measures return on cash invested after debt service. DSCR (debt service coverage ratio) compares NOI to annual mortgage payments.
Gross rent multiplier (GRM) is price divided by gross scheduled rent — a quick rent multiple without subtracting expenses. Cap rate is more precise when you have a reliable NOI; GRM is a faster screen when expense data is thin.
Use cap rate for unlevered yield screening; use cash-on-cash or DSCR when financing is part of the decision. Cap rate is not the same as the informal 2% rule (monthly rent vs purchase price) — see the FAQ below.
When cap rate misleads
Cap rate works best for stabilized income where rent and expenses can be normalized. It is a weak primary metric when:
- The property is still leasing up or heavily vacant
- A major renovation will change income soon
- You need a financed return (use cash-on-cash instead)
- Income is highly seasonal or irregular
Cap rate is also not the same as break-even volume for a product business — see our break-even calculator for unit economics.
Modeling management labor in NOI
If you self-manage with on-site staff — cleaners, maintenance coordinators, or front-desk coverage — include realistic labor cost in management or maintenance lines. Understating labor inflates NOI and cap rate.
For employer burden on wages (FICA, benefits), use our employee cost calculator. For scheduling hourly teams across properties, explore Ordio shift planning on the main site.
How to use this calculator
Choose a solve mode
Pick Find cap rate, Max price, or Required NOI depending on whether you know NOI, value, or your target cap rate.
Enter NOI or build from income
Enter annual NOI directly, or open Build NOI to start from gross rent, vacancy, and line-item operating expenses.
Fill value or target cap rate
Add property value or target cap rate for your mode. Results update live — no submit button.
Review bridge, benchmarks, and export
Check the NOI bridge, yield context band, and illustrative asset-class ranges, then export CSV or PDF if needed.
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Frequently asked questions about cap rate and NOI
What is a cap rate in real estate?
Cap rate is annual net operating income divided by property value, expressed as a percentage. It estimates unlevered yield from operations before mortgage and income tax.
How do you calculate cap rate?
Cap rate = Annual NOI ÷ Property value × 100. Example: $60,000 NOI on a $1,000,000 property → 6% cap rate. Use the same annual periods for both inputs.
What is a good cap rate for rental property?
Many US single-family rentals screen between 4% and 7%, but “good” depends on market, condition, and risk. Coastal markets often show lower caps; higher caps can reflect more risk or higher expenses — not automatically a better deal.
Does cap rate include mortgage?
No. Cap rate uses unlevered NOI. Mortgage principal and interest are excluded from operating expenses. For a financed view, use cash-on-cash return or DSCR after you know debt service.
How do I calculate property value from cap rate?
Property value = Annual NOI ÷ (Cap rate ÷ 100). Example: $48,000 NOI at a 6% market cap → $800,000 implied value. Use the Max price mode in this calculator.
What is NOI and how does it relate to cap rate?
NOI (net operating income) is income after vacancy and operating expenses but before debt and taxes. Cap rate is simply NOI divided by value — so NOI is the income input that drives the rate.
Can cap rate be negative?
Yes. If operating expenses and vacancy exceed income, NOI is negative and cap rate is negative. This calculator shows that result rather than hiding it, because the loss matters for screening.
Should I use purchase price or current market value?
Use purchase price when underwriting a new acquisition. Use current market value when reviewing a property you already own. Label which basis you use so comparisons stay consistent.
Why does my cap rate differ from the listing?
Listings sometimes omit vacancy, management, or maintenance, which inflates NOI and the stated cap rate. Rebuild NOI from the rent roll and operating records, then compare under the same expense rules.
Is cap rate the same as cash-on-cash return?
No. Cap rate ignores financing. Cash-on-cash measures annual cash flow after debt service divided by cash invested. Use cap rate for unlevered screening; use cash-on-cash when a loan is part of the deal.
What does a 7.5% cap rate mean?
A 7.5% cap rate means the property’s annual NOI equals 7.5% of its value. On a $1,000,000 asset, that is about $75,000 NOI per year before debt and income tax. It is an unlevered yield snapshot — not your personal return after financing.
Is a higher cap rate better?
Not automatically. A higher cap rate usually means more income per dollar of price, but it often reflects higher risk, weaker location, or heavier expenses. A lower cap can mean a safer, more competitive market. Compare like-for-like asset classes and rebuild NOI with the same expense rules.
What is a reverse cap rate calculator?
A reverse cap rate calculator finds property value from NOI and a target cap rate: Value = NOI ÷ (Cap rate ÷ 100). Use the Max price mode on this page — it is built for reverse cap rate and commercial real estate valuation workflows.
How do you calculate cap rate on a rental property?
Start with annual gross rent, subtract vacancy and operating expenses (tax, insurance, maintenance, management, utilities — not mortgage), to get NOI. Then divide NOI by property value × 100. This calculator’s Build NOI path walks through each line, or enter NOI directly if you already have a T-12.
Do cap rates rise when interest rates rise?
Often, yes. When safer yields (such as bonds) move up, buyers may demand a higher cap rate on real estate to compensate for risk — which can push property values down if NOI stays flat. Cap rates also move with local supply, rent growth, and asset-class risk, not only central-bank rates.
Is cap rate the same as the 2% rule?
No. The 2% rule is a rough shortcut: monthly rent should be about 2% of purchase price. Cap rate uses full-year NOI after vacancy and operating expenses. Cap rate is more precise for underwriting; the 2% rule is a quick filter, not a substitute for an NOI build-up.
Can I export cap rate calculations to Excel?
This tool does not generate an Excel workbook. Use ungated CSV export to open your NOI bridge and cap rate results in Excel or Google Sheets, or PDF export for a shareable snapshot. Both include inputs, headline cap rate, and the NOI breakdown.