How to use this calculator
Enter the property purchase price (or current market value if you already own it) and the gross annual rental income. Set your expected vacancy rate and property management percentage.
Add your annual operating expenses: property taxes, insurance, maintenance and repairs, and any other recurring costs. The calculator computes your Net Operating Income and divides it by the purchase price to determine the cap rate.
The results show your NOI, cap rate percentage, monthly income, gross rent multiplier, and a rating of how the property compares to typical benchmarks.
Understanding cap rate
The capitalization rate is the most widely used metric for evaluating the income potential of investment real estate. It answers a simple question: if you paid all cash for this property, what annual percentage return would the net income provide?
Because cap rate excludes financing, it allows you to compare properties on an equal basis regardless of how they are purchased. However, this means cap rate alone does not tell you your actual cash flow if you are using a mortgage.
The Gross Rent Multiplier (GRM) is a simpler screening metric. It tells you how many years of gross rent it would take to equal the purchase price. Lower GRM values generally indicate better deals, but GRM ignores expenses entirely.
Frequently asked questions
What is a cap rate?
Cap rate is the ratio of net operating income to purchase price, expressed as a percentage. It measures the unlevered annual return a property generates from rental income after operating expenses.
What is a good cap rate?
It depends on market and property class. Generally, 4% to 7% is moderate, 7% to 10% is good, and above 10% is excellent but may signal higher risk. Compare within the same property type and location.
Does cap rate include the mortgage?
No. Cap rate is calculated before debt service. It only considers NOI relative to property value. For leveraged returns, use the cash-on-cash return calculator instead.
What is Net Operating Income?
NOI is annual rental income minus vacancy and operating expenses (taxes, insurance, maintenance, management). It excludes mortgage payments and income taxes.
Cap rate vs cash-on-cash return?
Cap rate ignores financing and measures unlevered return. Cash-on-cash measures your actual cash return after mortgage payments, based on the cash you invested (down payment plus closing costs).