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.
Enter property value and rental income to see results
How Cap Rate is Calculated
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.
What is 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.
Include Country-Specific Costs & Projections
Add stamp duty, closing costs, capital gains tax, and 10-year projections tailored to your country.
Frequently Asked Questions
What is a good cap rate for rental property? ▼
A good cap rate typically falls between 5–10% for residential investment properties. Lower cap rates (3–5%) are common in premium, low-risk markets where investors expect strong appreciation. Higher cap rates (8–12%) are found in secondary markets or higher-risk properties with better immediate cash returns.
Does cap rate include mortgage payments? ▼
No. Cap rate intentionally excludes mortgage payments. It measures the property's inherent return regardless of how you finance it. This lets you compare a property you buy cash vs. one with 80% leverage on equal footing. For a return metric that includes your mortgage, use cash-on-cash return.
Cap rate vs rental yield — which should I use? ▼
Use gross yield for initial property screening (quick, only needs price and rent). Use cap rate when you're seriously evaluating properties — it accounts for expenses and uses current market value. In commercial real estate, cap rate is the standard valuation metric used by appraisers and institutional investors.
How do you calculate cap rate? ▼
Cap Rate = Net Operating Income (NOI) / Property Value × 100. NOI is your annual rental income minus operating expenses (property tax, insurance, maintenance, management fees, vacancy allowance). It does not include mortgage payments, capital expenditures, or depreciation.