Investor Calculator
Cap Rate Calculator
Determine the capitalization rate of an investment property to compare yields and evaluate deal potential across real estate markets.
Annual gross rental income minus operating expenses (excluding mortgage debt service).
Capitalization Rate
8.00%
annual return on property value
Monthly NOI
$2,667
Price / Income Multiple
12.5x
Cap Rate Benchmarks
Understanding Capitalization Rates in Commercial & Residential Real Estate
The Capitalization Rate (Cap Rate) is one of the most fundamental metrics used by commercial real estate investors, property managers, and appraisers to measure property performance without the variable influence of mortgage financing.
Net Operating Income (NOI)
NOI represents total gross revenue minus operating expenses such as property management fees, insurance, property taxes, maintenance, utilities, and vacancy reserves. It excludes mortgage payments and income tax expenses.
Market Risk & Asset Class
Cap rates compress in highly liquid, top-tier metro markets where investors accept lower yields in exchange for property appreciation and low tenant default risk. Higher cap rates reflect higher risk or lower appreciation expectations.
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Frequently Asked Questions About Cap Rates
What is a Capitalization Rate (Cap Rate)?
Capitalization Rate is the ratio of Net Operating Income (NOI) to property asset value. It measures the unleveraged rate of return expected to be generated on a real estate property.
How do you calculate Cap Rate?
The formula is: Cap Rate = (Annual Net Operating Income / Property Purchase Price) * 100. For example, a property with an annual NOI of $30,000 purchased for $400,000 has a cap rate of 7.5%.
What is a good Cap Rate for investment properties?
In general, a cap rate between 5% and 10% is considered good. Higher cap rates (8%–12%) indicate higher cash yield but may carry higher market risk or lower capital appreciation potential. Lower cap rates (3%–5%) are common in prime metro markets like NYC or San Francisco.
What is the difference between Cap Rate and ROI?
Cap Rate evaluates a property's intrinsic yield independent of financing (cash purchase). Return on Investment (ROI) or Cash-on-Cash Return includes debt financing, mortgage payments, and actual down payment capital invested.
Find High Cap Rate Properties
Explore income-generating investment properties with strong cap rates across major growth markets.