Cap Rate Calculator
Find the capitalization rate of a rental or commercial property. Enter the value, rent, vacancy and operating expenses to get net operating income (NOI) and cap rate, then add financing to see cash-on-cash return, cash flow and DSCR.
Parking, laundry, storage
Do not include mortgage payments
How to use the Cap Rate Calculator
- Enter the property value or purchase price and the total monthly rent.
- Set a vacancy rate (5% to 8% is a common assumption) and any other income.
- Enter yearly operating expenses: tax, insurance, maintenance, management and other costs. Leave out the mortgage.
- Optionally tick financing and enter the down payment, rate, term and closing costs for cash-on-cash return.
- Press Calculate cap rate to see NOI, cap rate and the value at other cap rates.
Cap rate formulas
- Effective gross income = (monthly rent + other income) × 12 × (1 − vacancy %)
- NOI = effective gross income − operating expenses
- Cap rate = NOI ÷ property value × 100
- Value = NOI ÷ cap rate
- Cash-on-cash return = (NOI − yearly mortgage payments) ÷ cash invested × 100
- DSCR = NOI ÷ yearly mortgage payments
Example: $3,200 rent × 12 = $38,400. After 5% vacancy, income is $36,480. Expenses of $4,800 tax, $1,800 insurance, $3,000 maintenance, $2,918 management (8%) and $1,200 other total $13,718, so NOI = $22,762. On a $400,000 property the cap rate is 5.69%.
Property value for $25,000 NOI at different cap rates
| Cap rate | Implied value |
|---|---|
| 4% | $625,000 |
| 5% | $500,000 |
| 6% | $416,667 |
| 7% | $357,143 |
| 8% | $312,500 |
| 10% | $250,000 |
A small change in cap rate moves value a lot, so use cap rates from recent sales of similar properties in the same area.
Frequently asked questions
How do you calculate cap rate?
Cap rate = net operating income ÷ property value × 100. NOI is the yearly rent and other income after vacancy, minus operating expenses such as tax, insurance, maintenance and management. Mortgage payments are not included.
What is a good cap rate?
There is no single good number. Many residential and commercial properties trade between about 4% and 10%. Lower cap rates are common in expensive, low-risk markets, while higher cap rates usually come with more risk, older buildings or weaker locations.
What is the difference between cap rate and cash-on-cash return?
Cap rate ignores financing and compares NOI with the full property value. Cash-on-cash return compares the cash flow left after mortgage payments with the cash you actually invested (down payment plus closing and repair costs).
Are mortgage payments operating expenses?
No. Principal and interest are financing costs, not operating expenses, so they are excluded from NOI and cap rate. They are included in cash flow and cash-on-cash return.
How can I use cap rate to value a property?
Rearrange the formula: value = NOI ÷ cap rate. A property with $25,000 NOI in a market where similar buildings trade at a 6% cap rate is worth about $416,667. The table in the calculator does this for several cap rates.
What is DSCR?
Debt service coverage ratio = NOI ÷ yearly mortgage payments. A DSCR of 1.25 means the property earns 25% more than its debt payments. Many lenders on investment property look for at least 1.20 to 1.25.