Cap Rate Calculator

Use this calculator to estimate capitalization rate from net operating income and property value. It helps investors compare income-producing properties before considering financing or individual tax position.

What this calculator does

The cap rate calculator measures net operating income as a percentage of property value.

It uses:

• net operating income
• property value
• income return
• unlevered performance

This gives a property-level return metric that is useful for comparing rentals, commercial property, and income assets.

How to use the cap rate calculator

Enter net operating income and property value. Net operating income should include rental income minus operating expenses, but exclude loan repayments, income tax, and depreciation.

Use current market value for an existing property or expected purchase value for a potential acquisition.

Cap Rate Formula

Cap rate = net operating income / property value x 100

Where net operating income is annual income after operating expenses and before financing.

Example calculation

If:

• Net operating income = 40,000
• Property value = 500,000
• Formula = 40,000 / 500,000 x 100
• Cap rate = 8.00%

A property worth 500,000 with 40,000 in net operating income has a cap rate of 8.00%.

What is cap rate?

Cap rate is a property valuation and return metric. It shows the annual operating income generated by a property relative to its value.

Because cap rate excludes financing, it can compare properties without the noise of different loan structures. It is not a complete investor return metric because it ignores leverage and future growth.

Interpreting your result

A higher cap rate often signals stronger income return or higher perceived risk. A lower cap rate may reflect a premium location, stronger tenant quality, or expected growth.

Compare cap rate with debt costs and long-term return expectations. The ROI Calculator can help assess investor-level return.

When to use this calculator

Use this calculator when you want to:

• compare income properties
• estimate property return before debt
• assess valuation reasonableness
• review operating income strength

Common mistakes

Common mistakes include:

• using gross rent as NOI
• including mortgage payments
• ignoring recurring expenses
• comparing different property types directly

FAQs

Does cap rate include mortgage payments?

No. Cap rate excludes financing so the property can be assessed before investor-specific debt structure.

Can net operating income be zero?

Yes. If NOI is zero, cap rate is 0.00%.