Cap Rate Calculator
Capitalization rate from income and price — and, run backwards, the price a target rate justifies. The measure that prices the property rather than the deal.
The address carries whatever you changed, so anyone opening it sees these numbers. Nothing is saved on our side.
Cap rate
5.68%
$19,872 of net operating income on a $350,000 price. At a 7% target the same income would justify $283,886 — below the asking price.
- $33,600
- $1,680
- 5% of gross
- $12,048
- Excludes the mortgage
- $19,872
- $283,886
- $66,114
What each cap rate is worth
The same income, priced at different yields. This is how a cap rate is used in practice — not to describe a deal you have, but to price one you are considering.
| Cap rate | Price | vs yours | |
|---|---|---|---|
| 4%Above what you would pay | $496,800 | −$0 more in total | |
| 5%Above what you would pay | $397,440 | −$0 more in total | |
| 6%Below what you would pay | $331,200 | −$0 more in total | |
| 7%yoursBelow what you would pay | $283,886 | — | |
| 8%Below what you would pay | $248,400 | −$0 more in total | |
| 10%Below what you would pay | $198,720 | −$0 more in total |
A higher cap rate means a lower price for the same income. That is the part that surprises people: a “better” cap rate is what a buyer wants and what a seller resists, and in a given market it reflects risk rather than skill. Cheap yields in a strong location and high yields in a weak one are usually both priced correctly.
What a cap rate deliberately leaves out
Its usefulness comes from what it ignores.
Your mortgage
Excluded on purpose. Two buyers with different deposits and rates get the same cap rate on the same building, which is what makes it comparable.
Your tax position
Depreciation and interest deductibility change the after-tax return substantially and depend on you, not the property.
Appreciation
Cap rate is a measure of income today, not of what the building might be worth later.
Capital expenditure timing
A roof due next year and one due in fifteen produce the same cap rate and very different first years.
How this calculator works
One division, and its inverse — which is the half people find more useful.
NOI = income − vacancy − operating expenses
cap rate = NOI ÷ price
price = NOI ÷ target cap rate
The third line is how the measure is actually used. You rarely want to know a property’s cap rate for its own sake — you want to know what price a given income justifies at the rate comparable buildings are trading at.
What is assumed
- Operating expenses exclude the mortgage. Including it is the most common error and it makes the figure meaningless.
- Income and expenses are stabilised — a normal year, not the year a boiler failed.
- No tax, no financing, no appreciation.
A worked example
$33,600 of gross annual rent on a $350,000 property, 5% vacancy, $12,048 of operating expenses.
| Gross annual income | $2,800 a month |
|---|---|
| Less vacancy at 5% | 33,600 × 0.05 |
| Less operating expenses | Tax, insurance, reserves, management |
| Net operating income | 33,600 − 1,680 − 12,048 |
| Cap rate at the asking price | 19,872 ÷ 350,000 |
| Price at a 7% target | 19,872 ÷ 0.07 |
If comparable buildings in the area trade at 7%, this income justifies $283,886 — $66,114 below the asking price. That gap is the negotiation, and it is a far more useful thing to walk in with than an opinion.
Questions people ask
The question has no general answer, and anybody who gives you one is guessing. Cap rates reflect risk and location: a stable building in a strong market trades at a low yield precisely because the income is dependable, and a high yield usually means the market is pricing in vacancy, condition or decline. What matters is how a property compares to genuinely similar ones nearby, which a local broker knows and a calculator cannot.
Not in a cap rate, no — and that is what makes it useful. It describes the property's ability to generate income, independent of who buys it or how they finance it. Two bidders with different deposits get the same cap rate on the same building. The measure that does account for your financing is cash-on-cash return, and a serious analysis uses both.
Property tax, insurance, management, repairs, maintenance and capital reserves, utilities you pay, and any HOA. Not the mortgage, not depreciation, and not capital improvements that add value rather than maintain it. Getting this boundary wrong is the most common way two people compute different cap rates on the same building.
Because the income is fixed and the rate is the divisor. The $19,872 of net operating income in the example below justifies $283,886 at 7% and $397,440 at 5%. A buyer wants the higher rate; a seller wants the lower one. Neither is 'better' in the abstract — it is a negotiation over what the income is worth.
As a sanity check. Find the cap rate comparable properties in your area actually traded at, apply it to your net operating income, and you have a defensible starting figure. It is not an appraisal, it ignores condition and lease terms, and it will not survive contact with a lender's valuation — but it will tell you quickly whether an asking price is in the right range.
Related calculators
An estimate from figures you enter. It is not an appraisal, it excludes financing and tax entirely, and it says nothing about condition, lease terms or the market you are buying in.