Calculate the capitalization rate on any investment property — compare properties, estimate value, and assess return potential.
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Calculate Cap Rate
Common questions about this calculator and how to use it effectively.
Cap rate (capitalization rate) measures a property's income relative to its value: Cap Rate = Net Operating Income ÷ Property Value. It's the most widely used metric to compare investment properties because it ignores financing — giving you a pure property-level return measure.
8%+ is generally considered strong. 5–8% is typical for stable suburban markets. 4–5% is common in high-demand urban/coastal markets where investors accept lower yield for appreciation. Cap rates have compressed in recent years as property values rose faster than rents. For total return over a hold period including appreciation, use our Rental ROI Calculator. Compare cap rates against dividend yields using our DRIP Calculator for a full investment picture.
NOI = Gross Rental Income − Operating Expenses. Operating expenses include property taxes, insurance, property management fees (typically 8–10% of rent), repairs and maintenance (1–2% of property value/year), and vacancy allowance (5–8% of potential rent). Mortgage payments are NOT included in NOI. For returns that include financing, see our Cash on Cash Calculator.
Yes: Value = NOI ÷ Cap Rate. If a property generates $18,000 NOI and comparable properties trade at a 6% cap, the implied value is $300,000. This is how commercial appraisers value income properties. This calculator shows implied values at multiple cap rates so you can quickly assess different market scenarios.
Gross yield = Gross Rental Income ÷ Property Value — it ignores all expenses. Cap rate uses NOI (after expenses), making it a more accurate profitability measure. A property might show 10% gross yield but only 5% cap rate after accounting for taxes, insurance, management, and maintenance.
Cap rate and property value move inversely: as values rise (or cap rates compress), yields fall. During low interest rate environments, investors accept lower cap rates. As rates rise, cap rate expectations typically rise too — meaning property values must fall to maintain investor appeal, assuming stable NOI.
Include: property taxes, landlord insurance, property management fees, routine repairs and maintenance, capital expenditure reserve (roof, HVAC, appliances), vacancy allowance, HOA fees (if applicable), and utilities paid by landlord. Exclude: mortgage payments, depreciation, and income taxes — these are investor-specific, not property-specific. For returns that include financing, see our Cash on Cash Calculator.
Both are useful. Purchase price cap rate shows your return on cost — relevant for your buying decision. Market value cap rate reflects current market pricing. If the purchase price cap rate significantly exceeds the market cap rate, you may have bought below market value. For long-term total return analysis, see our Rental ROI Calculator or model a diversified retirement plan with our Retirement Calculator.
Location is the single biggest driver of cap rate variation. Gateway markets like New York, San Francisco, and Los Angeles typically see cap rates of 3.5–5% because investors accept lower yields in exchange for liquidity, appreciation potential, and lower perceived risk. Secondary markets like Nashville, Phoenix, or Austin generally trade at 5–7%, offering a balance of growth and yield. Tertiary and rural markets can yield 8–12%+ but carry higher vacancy risk and lower liquidity. As a rule: the higher the cap rate, the higher the implied risk. Always benchmark against comparable sales (market cap rates) in the same submarket, asset class, and condition — not national averages.