How the Cap Rate Calculator works
Calculate rental property capitalization rate. Adjust the inputs above, then use the calculate button to generate a fresh estimate based on the numbers you entered.
The result is designed to give you a quick planning number, plus a short breakdown of the major figures behind it. You can reset the form at any time and try a different scenario.
When to use this calculator
Use this cap rate calculator to compare rental properties based on income and operating expenses before financing. It is useful for screening deals because cap rate focuses on the property itself rather than your mortgage structure.
Formula
Cap rate = net operating income / property value
- Net operating income is annual rent minus annual operating expenses.
- Property value is the purchase price or current market value used for comparison.
- Mortgage payments are not included in cap rate.
Worked example
For a $500,000 property with $3,000 monthly rent and $9,000 annual operating expenses, the calculator estimates net operating income and cap rate.
Common mistakes
- Including mortgage payments in net operating income.
- Using optimistic rents without checking local market data.
- Comparing cap rates across properties with very different risks or conditions.
FAQs
Does a higher cap rate mean a better property?
Not always. Higher cap rates can also reflect higher risk, weaker location or more management work.
Why exclude mortgage payments?
Cap rate measures property performance before financing so different buyers can compare the same asset.
Can cap rate be negative?
Yes, if operating expenses exceed rental income.