NOI is annual rental income minus operating expenses, before the mortgage.
Calculation details
Review the generated output before relying on it.
This tool runs in your browser. Your calculator inputs and results are never transmitted to us or to ad/affiliate partners. Ads and sponsored links may set third-party cookies to serve and measure them, but they never receive your calculation values. If you explicitly save a scenario, its permitted fields stay in local browser storage until you clear them. See our Privacy Policy.
Use this result
Share the current inputs or ask ChatGPT to explain the calculation in context.
What does this calculator estimate?
The capitalization rate is the annual unlevered return a property produces on its value, expressed as a percentage. It measures operating performance only — it ignores mortgage financing, and is the standard metric investors use to compare income properties regardless of how they're financed. Enter net operating income and property value to get yours.
- Cap rate = NOI ÷ property value
- Unlevered (ignores financing)
- Standard for comparing income properties
What the cap rate tells you
The capitalization rate is the property's unleveraged return — what it earns relative to its price before any mortgage. Investors use it to compare properties and markets: higher cap rates mean more yield for the price, usually with more risk.
Limitations to watch for
Cap rate ignores financing, so leveraged returns (cash-on-cash) differ. It uses current NOI — vacancies and expense changes shift it. Comparable cap rates vary by market, property type, and interest rates.
How to use it in practice
Use the cap rate to compare properties in the same market and against bond yields. A property is roughly 'priced at' 1 ÷ cap rate times NOI. Combine with cash-on-cash and ROI for the full picture.
['Enter the net operating income.', 'Enter the property value.', 'Read the cap rate and implied valuation.']
What the cap rate measures
The capitalization rate is net operating income (NOI) divided by property value, expressed as a percentage: a property with $24,000 annual NOI valued at $300,000 has an 8 percent cap rate. It measures the return a property generates from operations before financing — the standard metric for comparing income properties.
NOI: the numerator that decides everything
Net operating income is rental and other income minus operating expenses (property tax, insurance, maintenance, management, utilities paid by the owner) — but before mortgage payments. Using gross rent instead of NOI overstates the cap rate by ignoring the costs of operating the property. The calculator asks for the income and expense sides so the NOI is your number, not a guess.
Cap rate vs. cash-on-cash return
Cap rate ignores financing; cash-on-cash return divides annual cash flow by the cash you actually invested. A property with an 8 percent cap rate bought with 20 percent down and a 6.5 percent mortgage might produce a 6 percent cash-on-cash return — or higher, depending on the loan. Both metrics matter; they answer different questions.
What a good cap rate looks like
Cap rates vary by market and property type: lower (4–6 percent) in strong, low-risk markets; higher (7–10 percent) in secondary markets and riskier asset classes. A high cap rate is not automatically a bargain — it often prices in vacancy risk, deferred maintenance, or weak demand. Compare cap rates within the same market and asset class.
A worked example
A duplex rents for $2,000 total monthly with $700 in monthly operating expenses: annual NOI is $15,600. At a $250,000 asking price, the cap rate is 6.24 percent. If the seller quotes the cap rate on gross rent — $24,000 — they are showing 9.6 percent. The calculator's expense line prevents that comparison error.
How this calculator works
Formula
Cap rate = net operating income ÷ property value × 100. It measures the unleveraged annual return a property generates before financing.
Worked example
$24,000 annual NOI on a $300,000 property: cap rate = 8.0%.
Assumptions to verify
- NOI is accurate and annual.
- The value is current market value.
- No financing is included.
Frequently asked questions
What is a cap rate?
The net operating income divided by property value: $24,000 ÷ $300,000 = 8%. It's the unleveraged yield.
How is the cap rate calculated?
NOI ÷ property value × 100.
What is a good cap rate?
It depends on market and property type — 4–6% is common in hot markets, 8–10%+ in higher-risk ones.
Does the cap rate include the mortgage?
No — it's pre-financing. The cash-on-cash return includes leverage.
How do I value a property from its cap rate?
Value ≈ NOI ÷ cap rate. At an 8% cap, $24,000 NOI implies $300,000.
What moves cap rates?
Interest rates, market demand, property condition, and perceived risk.
Is a higher cap rate better?
Not automatically — it usually means more risk or a weaker market. Compare within the same market.
What is a cap rate in real estate?
Net operating income divided by property value — the operating return before financing.
How is NOI calculated?
Gross income minus operating expenses, before mortgage payments.
How is cap rate different from cash-on-cash?
Cap rate ignores financing; cash-on-cash divides actual cash flow by cash invested.
Cite this tool
BoringToolsKit. “Cap Rate Calculator.” boringtoolskit.com/cap-rate-calculator/ (reviewed 2026-08-25). Free to reference in articles, syllabi, and answer posts with a link.
Privacy: Inputs and results stay in this browser. Any future sponsored recommendation or advertisement will be clearly labeled and kept separate from the calculation.