Cap Rate Calculator - NOI, Cap Rate and Cash-on-Cash Return
Calculate net operating income, capitalization rate, and cash-on-cash return for rental, multifamily, and commercial real estate. Add mortgage financing to see the leveraged return alongside the unleveraged cap rate. Works in any currency, free, no login.
What is a cap rate calculator?
A cap rate calculator divides a property's net operating income (NOI) by its purchase price to produce the capitalization rate, a financing-neutral measure of return used to compare rental, multifamily, and commercial real estate. This calculator also computes cash-on-cash return when mortgage financing is added, so you can see both the unleveraged property return and your personal leveraged return side by side.
Cap Rate Calculator
Typical range is 4% to 8% for stabilized rentals.
Mortgage principal, interest, income tax, and depreciation are intentionally excluded from operating expenses, since cap rate is calculated before financing.
What Is Cap Rate and Why Real Estate Investors Use It?
Quick Answer
Cap rate, short for capitalization rate, is the ratio of a property's net operating income to its purchase price, expressed as a percentage. Investors use it to compare the income-generating efficiency of different properties on a level playing field, since it deliberately ignores financing and lets you judge the asset itself rather than the deal structure around it.
The reason cap rate stays popular despite its simplicity is that it strips out the variables that differ from buyer to buyer, like loan terms, down payment size, and interest rate. A cash buyer and a buyer with 75% financing looking at the same property will calculate the exact same cap rate, because cap rate only looks at NOI and price. That is precisely why this calculator separates cap rate from cash-on-cash return instead of blending them into one number, the way some simpler tools do.
What this cap rate calculator computes
- Net operating income (NOI): gross rental and other income, minus vacancy loss and a fully itemized set of operating expenses
- Cap rate: NOI divided by purchase price, the core unleveraged return metric
- Gross rent multiplier (GRM): purchase price divided by gross annual rent, a quick secondary screening metric many investors check alongside cap rate
- Cash-on-cash return: calculated automatically when you add mortgage details, showing your actual leveraged return on the cash you put down
- Debt service coverage ratio (DSCR): shown alongside cash-on-cash return, a figure most lenders check before approving investment property financing
- Income vs expense visualization: a chart breaking down exactly where gross income goes, so you can spot which expense category is eating into NOI the most
How it is different from similar tools
| Tool | Primary Purpose | Key Feature |
|---|---|---|
| Cap Rate Calculator (this tool) | Calculate NOI, cap rate, GRM, and cash-on-cash return with mortgage financing | Itemized expenses, mortgage and DSCR support, multi-currency, CSV export |
| Omni Calculator Cap Rate Tool | Single NOI-to-price cap rate calculation with currency conversion | Simple, fast, but no mortgage or cash-on-cash comparison |
| Mortgage Calculator | Calculate loan payments and amortization for any loan type | Does not calculate NOI, cap rate, or rental income analysis |
| Rental Yield Calculator | Calculate gross or net rental yield as a percentage of property value | Similar concept to cap rate but commonly used outside the US |
How to Calculate Cap Rate?
Quick Answer
To calculate cap rate: find the property's net operating income by subtracting vacancy loss and operating expenses from gross income, then divide that NOI by the purchase price and multiply by 100 to get a percentage.
Enter the purchase price and rental income
Use the actual purchase price, or current market value if you already own the property. Enter rental income monthly or annually, whichever matches your lease or listing data. Add any other income, such as parking, laundry, or storage fees.
Set a realistic vacancy rate
Even fully rented properties should budget for vacancy between tenants. A typical range is 4% to 8% depending on the local rental market and property type. Skipping this step is one of the most common reasons new investors overestimate NOI.
Itemize your operating expenses
Enter property tax, insurance, maintenance, a property management percentage, HOA fees if applicable, owner-paid utilities, and any other recurring costs. Do not include mortgage payments, income tax, or depreciation here, since cap rate is calculated before financing.
Optionally add mortgage details for cash-on-cash return
If you plan to finance the purchase, enter your down payment percentage, interest rate, and loan term. The calculator then shows your cash-on-cash return and debt service coverage ratio alongside the cap rate, so you see both the property's return and your personal leveraged return.
Cap Rate Formula — NOI to Purchase Price
The Cap Rate Formula
Cap Rate (%) = (Net Operating Income / Purchase Price) × 100
Example: ($24,000 NOI / $400,000 purchase price) × 100 = 6.0% cap rate
Step-by-step worked calculation
Step 1: Gross annual rental income
$3,000/month × 12 = $36,000
Step 2: Subtract vacancy loss (5%)
$36,000 − $1,800 = $34,200 effective gross income
Step 3: Subtract operating expenses
$34,200 − $10,200 expenses = $24,000 NOI
Step 4: Divide NOI by purchase price
$24,000 / $400,000 = 0.06 = 6.0% cap rate
NOI formula in detail
Net Operating Income Formula
NOI = Gross Income − Vacancy Loss − Operating Expenses
Operating expenses include property tax, insurance, maintenance and repairs, property management fees, HOA dues, and owner-paid utilities. NOI deliberately excludes mortgage principal and interest, income tax, and depreciation, since those depend on how the buyer finances the deal, not on the property's own performance.
Cash-on-cash return formula (with mortgage)
Cash-on-Cash Return Formula
Cash-on-Cash Return (%) = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
Where Cash Flow = NOI − Annual Mortgage Payments, and Cash Invested = Down Payment + Closing Costs.
Example: $24,000 NOI − $18,200 annual mortgage payments = $5,800 cash flow. On a $100,000 down payment, that is a 5.8% cash-on-cash return.
Cap Rate vs Cash-on-Cash Return vs GRM - Which Metric Matters Most?
Direct Answer
Use cap rate to compare properties as unleveraged assets, regardless of financing. Use cash-on-cash return to see your actual return on the cash you personally invest after a mortgage. Use the gross rent multiplier (GRM) as a fast initial screening tool before running full numbers. None of these three numbers should be used alone, experienced investors check all three before making an offer.
| Metric | What It Measures | Includes Financing? | Best Use |
|---|---|---|---|
| Cap Rate | NOI as a percentage of purchase price | No | Comparing properties independent of how each is financed |
| Cash-on-Cash Return | Pre-tax cash flow as a percentage of cash invested | Yes | Evaluating your personal leveraged return after a mortgage |
| Gross Rent Multiplier (GRM) | Purchase price divided by gross annual rent | No | Quick screening before running a full expense analysis |
Why two properties with the same cap rate can perform very differently
A property bought in cash and an identical property bought with 75% financing share the same cap rate, since cap rate ignores debt. But the financed property's cash-on-cash return could be higher or lower depending on the interest rate, because leverage amplifies both gains and losses. This is why this calculator shows both numbers side by side rather than only one.
What Is a Good Cap Rate? Reference Ranges by Market
Quick Answer
There is no single universal "good" cap rate. Most US residential rental properties fall between 4% and 10%, with lower numbers typical in expensive, low-risk metro areas and higher numbers typical in lower-cost or higher-risk secondary markets. Always compare a property's cap rate against similar nearby properties, not a fixed national target.
| Market Type | Typical Cap Rate Range | Why |
|---|---|---|
| Major coastal US metros (e.g. SF, NYC) | 3% to 5% | High purchase prices relative to rent, perceived lower risk |
| Mid-size US metros | 5% to 7% | Balance of price growth and rental income |
| Secondary or higher-risk US markets | 7% to 10%+ | Lower purchase prices relative to rent, higher perceived risk |
| Toronto / Vancouver multi-residential | 3% to 5% | High property values relative to rent in major Canadian cities |
| Smaller Ontario / secondary Canadian cities | 5% to 7% | Lower purchase prices relative to rent than major metros |
| Commercial / office / retail (varies widely) | 5% to 9%+ | Depends heavily on lease structure, tenant quality, and location |
Ranges are general, change with interest rates and local demand, and should be confirmed against current local market data before making investment decisions.
Cap rate and risk move in opposite directions
A lower cap rate generally signals a market the market views as lower risk, often because of stronger long-term appreciation expectations, more stable tenants, or a more desirable location. A higher cap rate generally compensates the buyer for taking on more risk, such as a less stable rental market, older property condition, or a less desirable location. Neither is automatically the better investment.
Real-Life Examples of Using a Cap Rate Calculator
These scenarios show how investors actually use cap rate analysis when evaluating a deal.
Example 1: Evaluating a single-family rental purchase
Scenario: A $350,000 single-family rental brings in $2,400 per month with $7,200 in itemized annual expenses, no mortgage.
Calculation: Gross income $28,800, minus 5% vacancy ($1,440), minus expenses $7,200 = NOI $20,160. Cap rate = $20,160 / $350,000 = 5.76%.
Outcome: The buyer compares this 5.76% cap rate against three similar listings in the same neighborhood to judge whether the asking price is fair relative to its income.
Example 2: Comparing cap rate against cash-on-cash return with financing
Scenario: A $1,200,000 multifamily property is financed with 25% down at 6.75% interest over 25 years.
Calculation: NOI calculates to roughly $90,000 after vacancy and expenses, giving a 7.5% cap rate. After the mortgage payment, the cash-on-cash return comes out lower, since the financed deal includes annual debt service the unleveraged cap rate ignores.
Outcome: The investor sees that while the property has a strong cap rate, the cash-on-cash return tells a different story once financing is added, helping decide whether a larger down payment would improve the deal.
Example 3: Screening a commercial property
Scenario: A $2,500,000 retail building generates $220,000 in annual lease income with an 8% vacancy assumption and itemized commercial operating expenses.
Calculation: Effective gross income after vacancy is roughly $202,400. After subtracting operating expenses around $53,000, NOI comes to about $149,400, giving a cap rate near 6.0%.
Outcome: The buyer uses this cap rate to benchmark the deal against other retail listings in the same submarket before submitting a letter of intent.
Common Mistakes When Calculating Cap Rate
These mistakes are common, even among experienced buyers, and can make a deal look better or worse than it really is.
Including mortgage payments in operating expenses
Mortgage principal and interest are financing costs, not operating expenses. Including them in the NOI calculation produces a cap rate that mixes the property's performance with the buyer's financing choice, making it impossible to compare fairly against other deals.
Ignoring vacancy loss entirely
Assuming 100% occupancy forever inflates NOI and cap rate. Even strong rental markets see turnover between tenants. Budgeting a realistic vacancy rate, typically 4% to 8%, keeps the cap rate calculation grounded in reality.
Using a seller's pro forma NOI instead of verified numbers
Listing materials sometimes show optimistic projected income and underestimated expenses. Always verify actual rent rolls, tax bills, and expense history, or build conservative estimates, rather than relying entirely on a seller's pro forma figures.
Comparing cap rates across very different markets
A 5% cap rate in a fast-appreciating coastal city and a 5% cap rate in a stagnant rural market do not represent equivalent risk or opportunity. Cap rate should be compared within the same market or against similar property types in similar locations.
Treating cap rate as the only metric that matters
Cap rate ignores appreciation potential, tax benefits, and the effect of financing on actual returns. Pairing it with cash-on-cash return and a realistic appreciation estimate gives a far more complete picture than cap rate alone.
Frequently Asked Questions
Load Examples
Quick Reference
Cap Rate Reference Ranges
General reference only — always compare against local, similar properties.
Calculator Features
Mortgage + Cash-on-Cash
Optional financing analysis alongside cap rate
Itemized Expenses
Tax, insurance, maintenance, management, and more
Multi-Currency
USD, CAD, GBP, EUR, and more
Excel-Ready Export
Download as CSV, opens directly in Excel
Cap Rate Terms Glossary
NOI
Net Operating Income — income left after vacancy and operating expenses, before financing.
Cap Rate
NOI divided by purchase price, expressed as a percentage.
Cash-on-Cash Return
Pre-tax cash flow divided by the actual cash invested after a mortgage.
GRM
Gross Rent Multiplier — purchase price divided by gross annual rent.
DSCR
Debt Service Coverage Ratio — NOI divided by annual mortgage payments.
Verify rent and expense figures against actual leases and bills, not just listing estimates
Always budget a realistic vacancy rate, even for currently full buildings
Compare cap rate only against similar properties in the same local market
Check cash-on-cash return separately whenever financing is involved
Re-run the numbers if interest rates or your financing terms change before closing
Fahad Ahmad
Founder of CalculatorsKit · Full-Stack JavaScript Developer · SEO & Digital Product Creator
Fahad Ahmad is the founder of CalculatorsKit and a full-stack JavaScript developer with more than 10 years of experience building modern web applications and online tools. He specializes in developing fast, accurate, and user-friendly calculators that help people make informed decisions in finance, health, education, business, mathematics, construction, and everyday life.
Every calculator published on CalculatorsKit is carefully researched, tested, and designed for accuracy and ease of use. Using modern technologies including Next.js, React, Tailwind CSS, and Shadcn UI, Fahad focuses on creating privacy-friendly tools that work instantly in the browser without requiring downloads or registration.
In addition to building calculators, Fahad writes educational articles that explain formulas, calculation methods, financial concepts, and practical examples in simple language so students, professionals, and everyday users can better understand the results they receive.