Cap Rate Calculator
Calculate capitalization rate (cap rate) from NOI and property value, estimate property value from a target cap rate, or determine the required NOI. Three modes in one calculator.
Calculator Mode
Inputs
Total rental income before vacancies
Excludes mortgage payments
Results
NOI
$33,000
Cap Rate
6.60%
Expense Ratio
31.25%
Cap Rate Context
These labels reflect yield level only. Appropriate cap rates vary by market, asset class, and risk. Always compare to local comps.
Cap Rate Formulas
NOI = Annual Income − Annual Operating Expenses
Cap Rate = NOI ÷ Property Value × 100
Property Value = NOI ÷ Cap Rate
Required NOI = Property Value × Cap Rate
Worked Example
A property generates $48,000/year gross rent with $15,000 in operating expenses (excluding mortgage):
NOI = $48,000 − $15,000 = $33,000
If the purchase price is $500,000: Cap Rate = $33,000 ÷ $500,000 × 100 = 6.6%
Cap Rate vs Cash-on-Cash Return
Cap Rate
- • Independent of financing
- • Compares properties objectively
- • Used by appraisers and institutions
- • Does not reflect leverage effects
Cash-on-Cash Return
- • Reflects actual financing terms
- • Measures return on cash invested
- • Changes with interest rates
- • Specific to your financing
Limitations of Cap Rate
- • Does not account for financing costs or leverage
- • Does not reflect future appreciation or depreciation
- • Assumes stabilized operations — does not model vacancy spikes
- • "Good" cap rates vary widely by city, neighborhood, and property type
- • Cap rate compression (rising prices, stable NOI) can reduce future returns
Frequently Asked Questions
What is cap rate compression?
Cap rate compression occurs when property values rise faster than income, resulting in lower cap rates. Higher prices with the same NOI produce a lower cap rate.
Does cap rate include mortgage payments?
No. Cap rate is calculated before debt service (mortgage payments). It measures a property's income potential independent of how it is financed.
What is a typical cap rate?
Cap rates vary significantly by location, property type, and market conditions. Urban core markets typically have lower cap rates than suburban or rural markets. Always compare to local comparable sales.
Educational Disclaimer
All calculations are estimates for educational and planning purposes only. PropertyFlowTools.com does not provide financial, tax, legal, lending, or investment advice. Verify calculations and consult qualified professionals before making property or financing decisions.
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Last reviewed: 2026