NOI, cap rate and what the property is worth at your target cap rate.
Work out the capitalization rate (cap rate) of any income property in seconds, and see what a property is worth at the cap rate you want. Enter the price, rent, vacancy and operating expenses; the cap rate calculator does the rest.
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The cap rate formula
Cap rate = net operating income (NOI) ÷ property price
NOI is the yearly rent you actually collect (after vacancy) minus the yearly operating expenses: taxes, insurance, repairs, management, utilities you pay and similar costs. The mortgage is not an operating expense, which is why the cap rate lets you compare properties no matter how they are financed.
The same formula run backwards gives a value: value = NOI ÷ cap rate. That is how commercial and apartment buildings are often priced.
Worked example
The calculator opens with a $400,000 property that rents for $48,000 a year.
- After 5% vacancy, it collects $45,600 (effective gross income).
- Minus $14,000 of operating expenses, the NOI is $31,600.
- Cap rate: $31,600 ÷ $400,000 = 7.9%.
- If similar properties trade at a 7% cap rate, this one is worth about $31,600 ÷ 0.07 = $451,429, so the $400,000 price looks good.
What is a good cap rate?
It depends on the market, the property type and the risk. As a rough guide, newer properties in strong, expensive markets often trade at lower cap rates (around 4–6%), while older properties or smaller markets trade higher (7–10% or more), because buyers want more income for more risk. A good cap rate is one that is at or above what similar properties in the same area sell for, and comfortably above your borrowing rate if you are using a loan.
Learn more in cap rate explained and cap rate vs. cash-on-cash.
Frequently asked questions
Should I use the purchase price or the value after repairs?
Use the price you are paying to judge your deal. If you are adding repairs, many investors also run it on price plus repairs to see the return on the total cost.
Does the cap rate include my mortgage?
No. The cap rate measures the property, not the financing. To see the return on your own cash after the mortgage, use the cash-on-cash return calculator.
Why do sellers' cap rates often look higher than mine?
Listings often use the current rent with no vacancy and leave out costs such as management or repairs. Enter realistic vacancy and every operating expense to get the true cap rate.