Cap rate calculator
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How to calculate cap rate
The capitalization rate is a property's unlevered annual yield: net operating income divided by price. It strips out financing, so it compares the property itself, not the loan behind it.
Net operating income (NOI) is what's left after a vacancy allowance and operating expenses, but before the mortgage. Take a property renting at $2,600/month bought for $350,000: gross rent is $31,200, a 5% vacancy allowance leaves $29,640 of effective gross income, and roughly $10,800 in operating expenses leaves an NOI near $18,870 — a cap rate of about 5.4%.
For the full breakdown of each input, see cap rate explained, net operating income, and the step-by-step guide to calculating cap rate.
Cap rate questions
What is a good cap rate?
It depends on the market and risk. As a rough guide, 5–7% is common in stable metros, with higher cap rates in markets that carry more vacancy or management risk. A higher cap rate means more income per dollar of price, but often more risk — compare cap rates within the same market, not across very different ones.
Does the cap rate include the mortgage?
No. Cap rate deliberately excludes financing so two properties can be compared on the same footing regardless of how each buyer finances the deal. Net operating income is calculated before any mortgage payment. To factor in your loan, use cash-on-cash return instead.
What expenses go into a cap rate calculation?
Operating expenses: property taxes, insurance, property management, maintenance and repairs, a vacancy allowance, HOA dues, and any owner-paid utilities. It excludes the mortgage, capital expenditures (like a roof replacement), depreciation, and income tax.
What's the difference between cap rate and cash-on-cash return?
Cap rate measures the property's unlevered yield (NOI ÷ value, no mortgage). Cash-on-cash return measures the levered return on the actual cash you invested (annual pre-tax cash flow after debt service ÷ cash invested). Cap rate compares properties; cash-on-cash measures your deal.
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