Cap Rate Calculator
Calculate the capitalization rate for any investment property — the standard metric for comparing returns independent of financing.
Property tax, insurance, maintenance, management. Do NOT include mortgage payments.
Capitalization Rate Formula
Example: A $400,000 property earning $24,000/year with $5,000 expenses: ($24,000 − $5,000) / $400,000 × 100 = 4.75% cap rate.
Capitalization rate (cap rate) measures the expected rate of return on a real estate investment property based on the net operating income it produces. Unlike rental yield, cap rate specifically excludes financing costs — making it the standard metric for comparing properties regardless of how they're purchased.
Why it excludes mortgage payments: Two buyers might purchase the same property with different loan terms. Cap rate strips that away to show the property's inherent return. If you want to measure return including your specific financing, use cash-on-cash return instead.
When to use cap rate: Comparing potential acquisitions, valuing commercial property (price = NOI / target cap rate), or benchmarking returns against the market. Cap rate is the language institutional investors and appraisers use.
Cap rates vary significantly by market and property type. Dense urban areas (Manhattan, Central London) may see 3–4% cap rates due to appreciation expectations, while secondary markets might offer 7–10%.
What this calculator doesn't include
Cap rate is a snapshot metric. It doesn't account for capital appreciation, mortgage leverage, tax benefits, or country-specific costs. For complete analysis including 10-year projections and exit scenarios — use our full ROI calculator.
Add stamp duty, closing costs, capital gains tax, and 10-year projections tailored to your country.
