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Cap Rate Calculator
Compare investment properties on income performance using cap rate, net operating income, and operating expense ratio — without letting financing distort the numbers.
Cap rate
5.77%
Annual NOI
$25,980
Effective gross income
$37,380
Operating expense ratio
30.5%
What the cap rate is telling you
Cap rate is in the typical range many investors target for stabilized rentals in stronger markets.
Annual operating expenses
$11,400
Implied price at this cap rate
$450,000
Cap rate is calculated as net operating income divided by property value, expressed as a percentage. It excludes financing because it is meant to compare property income performance independent of how each deal is financed.
EveryCalc calculators are designed for fast, practical estimates with transparent inputs and no required account. We use plain formulas, visible assumptions, and related tools so visitors can check the result from more than one angle.
Results are informational only. For financial, tax, legal, medical, construction, or other high-impact decisions, verify the output against primary sources or a qualified professional.
Learn more about our review process on the EveryCalc methodology page.
Calculation notes and example
Cap rate, NOI, and expense-ratio formulas
Annual effective gross income equals 12 months of rent and other income after the entered vacancy percentage. Annual operating expense equals the monthly expense input multiplied by 12. NOI equals effective gross income minus operating expense, and cap rate equals NOI divided by property value or price. Expense ratio divides annual operating expense by effective gross income. Debt service, depreciation, capital expenditures, and income taxes are excluded so the result remains an unlevered property measure.
Stabilized rental example
At $3,200 monthly rent, $75 of other income, 5% vacancy, and $950 of monthly operating expenses, annual effective gross income is about $37,335 and NOI is about $25,935. On a $450,000 property, modeled cap rate is about 5.76% and the operating-expense ratio is about 30.5%. Those outputs should be compared with normalized local income and expense evidence, not a universal target.
Normalize the operating statement
- Include management and replacement reserves even if the current owner self-manages or recently deferred work.
- Do not subtract principal, interest, depreciation, or income tax in NOI; those belong in leveraged or after-tax analysis.
- Cap rate is a single-period ratio. It does not forecast rent growth, downtime, renovation, sale costs, or future value.
Useful companion tools: Rental Property Calculator, Rental Cash Flow Calculator, Cash-on-Cash Return Calculator, and DSCR Calculator.
How to interpret the cap rate result
Best use
Use the result as a planning number for comparing payments, rates, returns, tax reserves, or cash-flow choices before you request a quote or make a commitment.
Cross-check
Compare the answer with the contract, lender estimate, tax form, brokerage statement, payroll record, or invoice that will control the real-world outcome.
Watch for
Do not rely on a single optimistic rate, return, or fee assumption. Money pages work best when you run low, base, and high cases and keep professional advice separate from the estimate.
This page belongs to the Finance calculator library, so the answer should be read in the context of the decision you are modeling rather than as a universal rule.
Before relying on this cap rate estimate
Most calculator mistakes come from the inputs, not the arithmetic. Use this short audit before you reuse the answer in a spreadsheet, quote, application, or important conversation.
Confirm source numbers
Match balances, rates, fees, taxes, income, and payment dates against the lender quote, payroll record, tax form, statement, invoice, or contract.
Separate cash flow from total cost
A lower monthly payment can still cost more over time if fees, interest, taxes, or a longer term are hidden in the structure.
Run conservative cases
Test at least one higher-cost or lower-return case before using the output for a purchase, refinance, investment, loan, or tax decision.
Rerun this page when the rate, price, term, fee, tax rule, income, expense, or expected holding period changes.
Sources used for this calculator
These primary or official references help define the rules, terminology, safety checks, or source documents behind this estimate. Source links were checked in July 2026. They do not turn the calculator output into a quote, appraisal, tax determination, or professional opinion.
- Publication 527: Residential Rental Property
Internal Revenue Service
Primary federal reference for rental income, operating expenses, depreciation, and reporting; calculator cash flow is not taxable income.
How to Use
- Enter the property value or asking price you want to test.
- Add monthly rent, any other income such as parking or laundry, and a realistic vacancy rate.
- Enter the recurring monthly operating expenses for taxes, insurance, repairs, management, and reserves.
- Review cap rate, NOI, effective gross income, and the operating expense ratio to compare the deal against other properties.
Frequently Asked Questions
What is a good cap rate?
There is no universal good cap rate. Stronger urban markets often trade at lower cap rates because investors expect appreciation. Secondary markets and properties with more management work usually need higher cap rates to be worth pursuing.
Why does cap rate exclude financing?
Cap rate is meant to compare the income performance of properties independent of how each one is financed. Two investors paying cash and using a 30-year loan should still see the same property cap rate.
Should I include the mortgage payment in NOI?
No. NOI excludes financing, depreciation, and income taxes. Loan payments affect cash flow and cash-on-cash return, but not NOI or cap rate.
What is the operating expense ratio?
Operating expense ratio compares operating expenses with effective gross income. Many small residential rentals run a 35–55% ratio depending on age, condition, and what utilities the owner pays.
How does cap rate compare with cash-on-cash return?
Cap rate measures property income performance. Cash-on-cash return measures how the cash you actually invested is performing once financing is layered on. Use both together when comparing leveraged deals.
Related Calculators
Rent Roll Calculator
Build the rent roll that drives effective gross income into this cap rate.
Cash-on-Cash Return Calculator
Layer financing onto the deal and see what the cash you put in is actually earning.
Rental Cash Flow Calculator
Build a full monthly cash flow with detailed expenses, vacancy, and debt service.
DSCR Calculator
Translate NOI into the debt service coverage ratio lenders use to size investor loans.
1031 Exchange Calculator
If selling this property, model the tax deferred by swapping into a like-kind replacement.
Property Management Fee Calculator
Budget full management cost so operating expenses in the cap rate are realistic.
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