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Cap Rate Calculator

Calculate capitalization rate from gross rental income, operating expenses, and property value — or reverse-solve for property value or required NOI from a target cap rate.

Author: Naeem Ullah
•Last Updated: July 12, 2026•
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Active Calculation FormulaCap Rate (%) = (Gross Income − Operating Expenses) ÷ Property Value × 100

Adjust Variables

$/yr
grossIncome
Min: 0 $/yrMax: 240k
$/yr
propertyTax
Min: 0 $/yrMax: 16k
$/yr
insurance
Min: 0 $/yrMax: 5k
$/yr
maintenance
Min: 0 $/yrMax: 12k
$/yr
propertyManagement
Min: 0 $/yrMax: 19k
%
vacancyPct
Min: 0 %Max: 100 %
USD
$
propertyValue
Min: $0Max: $3.0M
Use Real Campaign Presets
Real-Time ResultsUSD
Net Operating Income (NOI)$0
Total Operating Expenses$0
Cap Rate0%
All calculations are compiled with double-precision floating math directly in this browser frame. Perfect precision guaranteed.

Interactive Step-by-Step Calculation Proofs

View how variables resolve algebraically down to peer-reviewed standard outputs.

Why Use This Calculator

Cap rate is the fastest way to screen and compare income properties, because it strips out financing entirely — two investors with completely different mortgages get the same cap rate on the same property at the same price. That's also its main limitation: it says nothing about appreciation, financing cost, or the capital expenditures a property might need. This calculator handles the itemized expense breakdown that goes into NOI, and reverse-solves for property value or required NOI when a target cap rate is the known variable instead.

Mathematical Formula Explanation

Calculated standard benchmarks are based on direct functional dependencies. The primary calculation logic follows this formula:

Cap Rate (%) = NOI ÷ Property Value × 100

Cap rate measures a property's unlevered annual return: net operating income divided by property value. It ignores financing, appreciation, and capital expenditures entirely, so it's a snapshot of the property's income performance independent of how it's paid for.

Worked Examples (Step-by-Step)

These examples show cap rate calculated from an itemized expense breakdown, and the reverse-solved value and NOI modes.

Case Scenario 1

Example 1: Cap Rate From an Itemized Expense Breakdown

“A property collects $120,000 in annual gross rental income. Operating expenses are $8,000 property tax, $2,500 insurance, $6,000 maintenance, $9,600 property management, and a 5% vacancy allowance. The property is valued at $1,500,000.”

Given Inputs
  • GROSSINCOME: 120,000
  • PROPERTYTAX: 8,000
  • INSURANCE: 2,500
  • MAINTENANCE: 6,000
  • PROPERTYMANAGEMENT: 9,600
  • VACANCYPCT: 5
  • PROPERTYVALUE: 1,500,000
Computed Outputs
  • NOI: 87,900
  • OPERATINGEXPENSES: 32,100
  • CAPRATE: 5.86
Case Scenario 2

Example 2: Solving for Property Value at a Target Cap Rate

“An investor wants a 6% cap rate on a property generating $90,000 in NOI. What property value does that imply?”

Given Inputs
  • NOIFORVALUE: 90,000
  • TARGETCAPRATEFORVALUE: 6
Computed Outputs
  • IMPLIEDPROPERTYVALUE: 1,500,000
Case Scenario 3

Example 3: Solving for Required NOI at a Target Cap Rate

“A $1,500,000 property needs to hit a 6% cap rate. What NOI is required?”

Given Inputs
  • PROPERTYVALUEFORNOI: 1,500,000
  • TARGETCAPRATEFORNOI: 6
Computed Outputs
  • REQUIREDNOI: 90,000

Frequently Asked Questions (FAQ)

Cap rate = Net Operating Income (NOI) ÷ Property Value × 100. NOI is annual gross rental income minus operating expenses — property tax, insurance, maintenance, property management, and a vacancy allowance. Mortgage payments and depreciation are not operating expenses for this calculation, since cap rate is meant to measure the property's return independent of how it's financed.

There's no single good cap rate — it varies by market and asset class. Core urban markets with stable, high-demand properties commonly trade at lower cap rates (roughly 4–6% is a commonly discussed range), reflecting lower perceived risk and stronger appreciation expectations, while secondary or tertiary markets and higher-risk asset classes commonly trade at higher cap rates (roughly 7–10%+) to compensate for that added risk. These are general reference ranges, not investment advice — the right comparison is always against similar properties in the same market.

Cap rate measures return on the full property value, ignoring financing. Cash-on-cash return measures annual pre-tax cash flow against the actual cash invested (down payment plus closing costs), so it directly reflects the effect of a mortgage — a leveraged property can have a materially different cash-on-cash return than its cap rate would suggest.

Cap rate is a single-year snapshot of income return on property value. ROI (return on investment) is broader and typically accounts for the full investment period, financing, and both cash flow and appreciation — see the ROI calculator for that broader calculation. Cap rate is faster to compute and easier to compare across listings, which is why it's used for quick screening even though it captures less of the full picture.

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