Cap Rate Calculator
Calculate the capitalization rate on any rental property in seconds. Enter the purchase price and rent — we'll handle the NOI math and tell you whether the cap rate is strong, solid, or low for the market.
Property Details
Enter the purchase price and rent — we'll handle the rest.
Taxes, insurance, maintenance, management, capex. The 50% rule is a common starting point — typical range is 35–50%.
Average across the US is ~6%. Tight markets run 2–4%; weaker ones 8%+.
Your Cap Rate
Common in major metros where appreciation drives total return more than cash flow.
What is cap rate?
Cap rate (capitalization rate) is the ratio of a rental property's annual net operating income to its purchase price. It tells you what the property would yield as a pure cash investment, before financing. Investors use it to value income properties and to compare deals across markets on an apples-to-apples basis.
The formula
What counts as a good cap rate?
- 3–5%: Major metros (NYC, SF, LA, Boston, Seattle). Low yield, but appreciation drives total return.
- 5–7%: Solid secondary markets (Charlotte, Nashville, Phoenix, Tampa, Denver). The sweet spot for most investors.
- 7–9%: Cash-flow markets (Cleveland, Memphis, Indianapolis, Birmingham, Pittsburgh). High yield, less appreciation.
- 9%+: Often signals risk — declining areas, deferred maintenance, or unstable tenant base. Worth a closer look before buying.
What cap rate doesn't tell you
Cap rate ignores financing, appreciation, tax benefits, and capex timing. Two properties with identical 6% cap rates can have very different returns once you layer in a mortgage, depreciation, and local rent growth. Use cap rate to screen deals quickly, then run a full analysis on the ones that pass.
Frequently asked questions
What is a cap rate?
The capitalization rate (cap rate) is the ratio of a rental property’s annual net operating income (NOI) to its purchase price. It measures the unlevered return — the cash yield you would earn if you bought the property in cash. Cap rate = NOI ÷ Purchase Price.
How do you calculate cap rate?
Cap rate = Net Operating Income ÷ Purchase Price × 100. NOI is gross rental income minus vacancy loss minus operating expenses (taxes, insurance, maintenance, property management, capex reserves). NOI does NOT subtract mortgage payments — cap rate is unlevered by definition.
What is a good cap rate?
A "good" cap rate depends on the market. In major metros (NYC, SF, LA, Boston), cap rates of 3–5% are normal because investors expect appreciation. In secondary cities and the Midwest/South, 6–8% is common. Cap rates above 9% often signal higher risk — weaker tenant demand, deferred maintenance, or declining markets.
Does cap rate include the mortgage?
No. Cap rate is intentionally calculated before debt service so you can compare properties apples-to-apples regardless of how each is financed. To factor in your mortgage, use cash-on-cash return instead.
What’s the difference between cap rate and cash-on-cash return?
Cap rate measures the unlevered return on the full purchase price. Cash-on-cash return measures the levered return on your actual cash invested (down payment + closing costs + renovations). With financing, cash-on-cash is usually higher than cap rate because you’re using leverage.
How do I estimate operating expenses?
A common starting point is the "50% rule" — assume operating expenses run 50% of gross rent. For a more refined estimate, sum: property taxes (1–2% of value), insurance (0.5–1%), maintenance (5–10% of rent), property management (8–10% of rent), and capex reserves (5–8% of rent). Newer, lower-rent properties tend toward 35–40%; older, higher-turnover properties run 45–55%.
Should I use this for commercial real estate?
The math is identical. Cap rate is the standard valuation metric for multifamily, retail, office, and industrial. The main difference is operating expense ratios — commercial leases often pass expenses through to the tenant (NNN), so you’d enter a lower expense rate.
Want a full investment analysis?
Cap rate is one number. PropertyDNA gives you cap rate, cash-on-cash return, DSCR, monthly cash flow, and AI-powered insights on any US address — free.
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