ROI Math

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Cap Rate Calculator

A cap rate calculator estimates the capitalization rate of a rental or commercial property by dividing net operating income (NOI) by the purchase price. Enter price, income, and expenses below to get cap rate, NOI, and expense ratio instantly — free and with no sign-up.

Last updated 2026-05-31

Investment Return Calculator
Live NOI, cap rate, financing, and cash-flow underwriting.
$2,865/mo
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Annual total: $42,000

Advanced
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NOI
$84,000
Cap rate
9.88%
Expense ratio
33.33%

Income allocation

Gross income, expenses, and net return split.

Operating expenses$42,000
Net operating income$84,000
Loan amount
$637,500
Annual cash flow
$34,382

Cap rate formula

Cap rate equals net operating income divided by purchase price:

Cap rate = (NOI ÷ Purchase price) × 100

NOI is gross annual income minus operating expenses, before loan payments. A property earning $126,000 in income with $60,000 in expenses has a $66,000 NOI; on an $850,000 purchase price that is a 7.76% cap rate.

What is a good cap rate?

Most residential and commercial deals trade between a 4% and 10% cap rate. Lower cap rates signal lower-risk, high-demand markets with stronger appreciation; higher cap rates usually compensate for higher risk or slower growth.

Because cap rate ignores financing, investors use it to compare income yield across similar properties before layering in a mortgage. To model leverage, switch to the cash-on-cash return calculator.

How to calculate cap rate in 3 steps

  1. Add up gross annual income (rent plus any other income).
  2. Subtract annual operating expenses — management, maintenance, insurance, property taxes, and utilities — to get NOI. Do not subtract mortgage payments.
  3. Divide NOI by the purchase price and multiply by 100 to get the cap rate percentage.

Frequently asked questions

What is a cap rate?

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A capitalization rate (cap rate) is a property's net operating income divided by its purchase price or market value, expressed as a percentage. It measures the unleveraged annual income yield of a real estate investment, before mortgage financing and income taxes.

How do you calculate cap rate?

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Divide net operating income (NOI) by the purchase price, then multiply by 100. NOI is gross annual income minus operating expenses such as management, maintenance, insurance, property taxes, and utilities — but not mortgage payments. For example, $66,000 NOI on an $850,000 property is a 7.76% cap rate.

What is a good cap rate?

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A good cap rate typically falls between 4% and 10%, depending on location, asset class, and risk. Lower cap rates (4%-6%) are common in high-demand, low-risk markets, while higher cap rates (8%-10%+) usually reflect higher risk, lower-growth, or secondary markets. There is no single 'correct' number — investors compare cap rates against similar local properties.

Does cap rate include the mortgage?

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No. Cap rate deliberately excludes mortgage payments and financing terms so investors can compare properties on equal footing regardless of how each deal is financed. To measure leveraged returns after debt, use cash-on-cash return instead.

What is the difference between cap rate and cash-on-cash return?

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Cap rate measures the unleveraged income yield based on the full purchase price (NOI ÷ price). Cash-on-cash return measures the leveraged cash yield based only on the cash you invest, after subtracting mortgage debt service (annual cash flow ÷ cash invested). Cap rate compares assets; cash-on-cash evaluates a specific financing structure.

This cap rate calculator is for educational estimates only and is not financial or investment advice. Verify income, expenses, and market rates with your own due diligence before making an investment decision.