Cap rate calculator
The cap rate compares a property's yearly net operating income with its price. Enter the price, the yearly rent, the vacancy allowance and the yearly operating costs. You get the net operating income, the cap rate and the value the income implies at a cap rate of your choice.
Runs in your browser: nothing you enter is sent anywhere.
How to use it
- Enter the price and the gross rent for a full year.
- Enter a vacancy allowance and the yearly operating expenses.
- Optionally change the target cap rate to see what value it implies.
How it works
- Rent collected = gross rent × (1 − vacancy ÷ 100).
- Net operating income = rent collected − operating expenses.
- Cap rate = net operating income ÷ price × 100.
- Value at a target = net operating income ÷ (target ÷ 100).
Worked example
A property priced at 500,000 rents for 60,000 a year. With 5% vacancy, 57,000 is collected. After 20,000 of expenses the net operating income is 37,000, so the cap rate is 37,000 ÷ 500,000 = 7.4%. At a target cap rate of 8% the income supports a value of 462,500.
Tips
- Use the same expense assumptions when comparing two properties.
- Do not put the mortgage payment in the expenses; the cap rate ignores financing.
- Vacancy and repair allowances are your own estimates; the tool does not know local norms.
Frequently asked questions
What is a capitalization rate?
It is net operating income divided by the property's price or value, shown as a percent. It measures the income the property produces on its own, as if it were bought without a loan.
What counts as operating expenses?
Costs of running the property: property tax, insurance, repairs, management and utilities you pay. Mortgage payments, income tax and depreciation are normally left out of net operating income, so they are not part of the cap rate.
What is a good cap rate?
There is no single answer. Markets, property types and interest rates differ, and a higher rate usually comes with more risk or a weaker location. Use it to compare similar properties, not as a verdict.
How is the value at a target cap rate found?
Value = net operating income ÷ target cap rate. With 37,000 of income and a target of 8%, the value is 37,000 ÷ 0.08 = 462,500.
How is this different from the rental yield calculator?
Both divide income by cost. This one follows the cap rate convention: net operating income over price, with no buying costs added, and it also gives the value at a target rate.