How to use the cap rate calculator
- Choose Cap rate to rate a property at a known price, or Property value to price it from a market cap rate.
- Enter the Purchase price or value (cap rate mode) or the Market cap rate (value mode).
- Enter the Annual gross rent as if fully let, the Vacancy and collection loss percentage and the Annual operating expenses.
- Read the NOI and the cap rate or value, plus the expense ratio, gross rent multiplier and, in value mode, the values at nearby cap rates.
How cap rate is worked out
Net operating income is gross rent minus vacancy and collection loss minus operating expenses. The capitalization rate is NOI divided by the price, times 100. Turned around, value equals NOI divided by the cap rate, which is how appraisers use the income approach. Both are unleveraged: mortgage payments never enter NOI. The OCC Comptroller's Handbook on commercial real estate lending defines NOI and capitalization rates the same way.
Worked example with the default inputs
A $500,000 property with $48,000 of annual gross rent and 5% vacancy loses $2,400, leaving $45,600 of effective gross income. Subtract $14,000 of operating expenses and NOI is $31,600 a year. The cap rate is $31,600 divided by $500,000, or 6.32%. Expenses take 30.7% of the income collected, and the gross rent multiplier is 10.42. Switch to Property value with a 6.5% market cap rate and the same NOI is worth $486,154, or $526,667 at 6% and $451,429 at 7%.
Limits and edge cases
- A cap rate is a one-year snapshot. It says nothing about rent growth, big repairs coming up or what the building will sell for later.
- If expenses exceed the rent collected, NOI is negative and the tool shows a warning; a value cannot be estimated from a cap rate until NOI is above zero.
- Using the seller's figures? Check them. Listings often leave out vacancy, management or repairs, which inflates the cap rate. To see returns after a mortgage, use the rental property calculator; to compare with other investments, try the ROI calculator.
Cap rate questions
What is a good cap rate?
It depends on the property type and the market. Many investors see 5% to 10% as a normal range, with lower cap rates in expensive, stable areas and higher ones where rents are less certain. Compare a property with recent sales of similar buildings nearby rather than with a national rule of thumb.
How do you calculate cap rate?
Divide the yearly net operating income by the purchase price and multiply by 100. NOI is the rent you actually collect minus operating expenses such as tax, insurance, repairs and management.
Does cap rate include the mortgage?
No. Cap rate measures the property as if you paid cash, so two buyers with different loans see the same cap rate. Mortgage principal and interest are left out of NOI.
What is the difference between cap rate and cash-on-cash return?
Cash-on-cash return is your yearly cash flow after the mortgage divided by the cash you put in. Borrowing raises it above the cap rate only when the loan constant, a year of payments divided by the loan amount, is lower than the cap rate. A 30-year loan at 6.5% has a loan constant of about 7.6%, so on a 6% cap rate property it lowers your return.
What counts as operating expenses?
Property tax, insurance, repairs and maintenance, property management, landlord-paid utilities, HOA dues and a reserve for replacements. Mortgage payments, depreciation, income tax and major improvements are not operating expenses.
Source: OCC Comptroller's Handbook, Commercial Real Estate Lending (NOI and capitalization rate). Updated September 2026. This is an estimate, not investment advice.