This cap rate calculator computes a property’s capitalization rate from its net operating income, solves for value or NOI when you know the other two, and adds the investor’s cash-on-cash return.
| Cap rate (NOI ÷ value) | – |
| Implied NOI at this cap on $100k | – |
| Cash-on-cash return | – |
| Gross rent multiplier hint | – |
NOI excludes mortgage payments (debt service) but includes taxes, insurance, maintenance, management and a vacancy allowance. Cap rate is an unlevered yield — it prices the building, not your loan; cash-on-cash prices your actual dollars in.
Cap Rate = NOI ÷ Value — Real Estate’s Price-to-Earnings
The full deal analysis (mortgage, expenses, cash flow) is our Rental Property Calculator. Part of our Finance Calculators collection.
Worked Example (Verified)
- NOI $18,000 on a $300,000 property (defaults): cap rate = 6.00%; with $4,800 cash flow on $60,000 invested, cash-on-cash = 8.00% — leverage lifts the equity yield above the property yield when the cap exceeds the loan’s cost
- Valuation direction: NOI $18,000 at a market cap of 5.5% implies value = 18,000/0.055 = $327,273 — the income approach appraisers actually use
- Rate environment logic: when Treasury yields sit at 4–5%, a 5% cap rate offers thin risk premium — cap rates drift up (values down) as money gets expensive, the 2022–2024 repricing in one line
Cap Rate Discipline
- Use forward (next-12-month) NOI with honest vacancy (5%+) and reserves — pro-forma NOI is fiction’s favorite genre.
- Cap rate ignores appreciation, amortization and taxes: it’s a snapshot yield, not a total return (that’s IRR territory).
- Compare caps within a market and asset class only: 5% in Manhattan and 8% in a shrinking town can price risk identically.
- “Going-in” cap (today’s NOI) vs “yield on cost” (stabilized NOI ÷ total project cost) — developers underwrite the second.
Related Tools
- Rental Property Calculator — full deal cash flow
- LTV Calculator — loan-to-value for the financing
- Finance Calculators — the full collection
Frequently Asked Questions
How do you calculate cap rate?
Cap rate = annual net operating income ÷ property value. $18,000 NOI on $300,000 gives 6.00%. NOI is rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy) but before mortgage payments. This calculator also returns cash-on-cash return.
What is a good cap rate?
Context, not gospel: roughly 4–6% in expensive coastal markets, 6–9% in many secondary markets, higher where risk or decline is priced in. A cap well below the mortgage rate signals negative leverage — the loan costs more than the property yields — and a bet on appreciation rather than income.
How is cap rate different from cash-on-cash?
Cap rate is unlevered (property-level, ignores your loan). Cash-on-cash is levered: annual cash flow after debt ÷ your cash invested. Defaults: 6.00% cap becomes 8.00% cash-on-cash because debt at below-cap cost amplifies equity returns — in both directions when things sour.
How do you value a property from cap rate?
Value = NOI ÷ market cap rate. An $18,000 NOI property in a 5.5%-cap market is worth ≈ $327,273. This is the income-capitalization approach — the primary appraisal method for income property.
Does cap rate include the mortgage?
No — deliberately. Excluding debt service makes cap rate a property-and-market measure comparable across buyers with different financing. Add your loan back in via cash-on-cash and full rental analysis for the investor-level view.
Is this cap rate calculator free?
Yes — free, instant, no sign-up.