Cap rate calculator: compute the capitalization rate on a rental property from property value and net operating income for unlevered yield. Free, no signup.
NOI is annual rental income minus operating expenses, before the mortgage.
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A $300,000 property with $24,000 of annual net operating income has an 8.00% cap rate: NOI divided by value, times 100. Cap rate is the yield of a property bought in cash, before financing. Enter NOI and value in the BoringToolsKit cap rate calculator to compare properties on income alone.
Cap rate measures unleveraged yield: it ignores mortgage costs entirely. (Source: BoringToolsKit calculation methodology)
A higher cap rate usually signals higher risk or lower demand, not a better deal. (Source: BoringToolsKit calculation methodology)
NOI excludes loan payments, income taxes, and capital expenditures. (Source: BoringToolsKit calculation methodology)
The 8% worked example: $24,000 NOI on a $300,000 property.A $1,300,000 unit with $73,750 NOI yields a 5.67% cap rate.
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Cap rate on a $700k purchase
What this means for your numbers: Each dollar of NOI added moves the worked example's cap rate by ~0.14 points. At the 8.57% cap, every $10,000 of NOI is worth about $117,000 of property value.
Illustrative breakdown using the worked example above. The calculator computes your own numbers with the same formula.
A worked example, dollar by dollar
Take a small strip retail unit listed at $1,300,000. Annual rent rolls to $150,000 gross. Subtract vacancies and credit loss of $7,500 (5%), then operating costs: property taxes $21,000, insurance $6,500, common area maintenance $12,500, management at 4% of collected rent ($5,700), and a $15,550 reserve for roof and parking repairs. Total expenses come to $68,750, so NOI is $150,000 minus $7,500 minus $68,750 = $73,750.
Divide: $73,750 / $1,300,000 = 0.0567, so the cap rate is 5.67%. The calculator also shows the value a 6% cap would imply: $73,750 / 0.06 = $1,229,167. At the asking price the buyer is paying roughly $70,833 more than that benchmark, which is the number to negotiate with.
One check buyers skip: run the NOI in reverse. If a seller advertises a 7% cap on this building, the implied NOI would be $91,000. Ask for the rent roll and expense ledger that supports $91,000 before assuming it exists.
Where cap rate quietly misleads
The formula treats every dollar of NOI the same, but persistence varies. A $73,750 NOI built on a 10-year lease with a national tenant is worth far more than the same number from month-to-month leases, yet both produce 5.67%. REIT reporting often quotes cap rates that exclude reserves; dropping the $15,550 reserve here lifts the rate to 6.87% on identical economics, a 120 basis point swing from one accounting choice.
Financing is invisible. On 75% debt at 7% interest ($975,000 loan, about $64,900 first-year interest), cash flow after debt service is roughly $8,850, a 2.95% cash-on-cash return on the $325,000 equity, not 5.67%. Leverage can also make it negative if rates rise at refinancing.
Edge cases to watch: NOI of exactly $0 yields a 0.00% cap rate that looks valid, so confirm expenses do not exceed revenue. Negative NOI produces a negative rate, which is technically correct but usually signals a value-add deal priced on stabilized numbers instead. Cap rates also ignore capital expenditure timing; a building needing a $200,000 roof next year is not equivalent to one that just replaced it.
