Cap Rate Calculator

Cap Rate (Capitalization Rate)

The ratio of a property’s Net Operating Income (NOI) to its current market value. It represents the expected annual return if purchased with all cash (no financing).

Net Operating Income (NOI)

Annual income generated by a property after deducting operating expenses. Does NOT include mortgage payments, capital expenditures, or depreciation.

Property Valuation Using Cap Rate

You can estimate a property’s value by dividing its NOI by the market cap rate for similar properties.

Required NOI Calculation

To achieve a target cap rate at a given price, calculate the required NOI.

What’s a “Good” Cap Rate?

There’s no universal answer—it depends on property type, location, and risk tolerance.

3-5%: Low risk, prime locations, Class A properties

5-7%: Moderate risk, stable markets, typical residential

7-10%: Higher yield, value-add opportunities, secondary markets

10%+: High risk, distressed properties, tertiary markets

Cap Rate vs Cash-on-Cash Return

Cap rate assumes all-cash purchase and ignores financing. Cash-on-Cash measures actual return on cash invested after financing.

Payback Period

How many years of NOI it would take to recover the property’s purchase price. A rough measure of investment timeline.

Effective Gross Income (EGI)

Total potential rental income minus vacancy and credit losses. The realistic income you can expect to collect.