Property / Investing
Cap Rate Calculator (Capitalization Rate and NOI)
Work out a rental property's net operating income and capitalization rate from its price, rent, vacancy, and operating costs, and see what the same income would be worth at cap rates from 4% to 10%.
Cap Rate Calculator (Capitalization Rate and NOI): Net operating income is the rent collected less operating costs: 3,000 a month is 36,000 a year, less 5% vacancy (1,800) and 10,800 of costs, leaves 23,400. Divided by a price of 400,000, that is a cap rate of 5.85%. The same income would be worth 585,000 at a 4% cap rate and 292,500 at 8%. Runs 100% locally in your browser with zero server file uploads.
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| Cap rate | Price for this income |
|---|---|
| 4% | 585,000 |
| 5% | 468,000 |
| 6% | 390,000 |
| 7% | 334,286 |
| 8% | 292,500 |
| 10% | 234,000 |
The cap rate is net operating income ÷ price: the yearly return if you bought the property with cash. Net operating income is the rent you actually collect less running costs such as property tax, insurance, repairs, and management, but not mortgage payments, so properties can be compared however they are financed. The table shows what the same income is worth at other cap rates.
Cap rates and prices
Value = net operating income ÷ cap rate, so falling cap rates push prices up: at 23,400 of income, a fall from 6% to 5% raises the value from 390,000 to 468,000. That is why rising interest rates, which push cap rates up, tend to lower property prices.
Longer horizons
The cap rate is one year's snapshot. For a property's value over a holding period, with the sale price at the end, discount the cash flows with the NPV and IRR calculator.
How to use it
- Enter the price or value and the monthly rent.
- Set the vacancy rate and the yearly operating costs.
- Read the cap rate and net operating income, and compare prices in the table.
Privacy & limitations
Everything is calculated in your browser.
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Frequently asked questions
What is a good cap rate?
It depends on the market and the risk: prime city apartments often trade around 4 to 5%, while riskier or smaller-town properties may need 7 to 10%. A higher cap rate means more income for the price, usually with more risk.
Why are mortgage payments left out?
So that properties can be compared on their own merits, whoever buys them and however they are financed. To see the return on your cash with a loan, use the cash-on-cash calculator.
What counts as an operating cost?
Property tax, insurance, repairs and maintenance, management, utilities the owner pays, and service charges; not mortgage interest, depreciation, or income tax.
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