Cap Rate Calculator
Work out the capitalization rate on an income property. Enter the net operating income and the value to see the cap rate, or fill in any two of the three fields and the calculator solves for the missing one.
How to calculate cap rate
- Enter the annual net operating income (rent collected minus operating expenses).
- Enter the property value or purchase price.
- Read the cap rate, or leave one field blank to solve for value or NOI.
Examples
24,000 NOI on a 400,000 property
Net operating income 24,000, property value 400,000
Cap rate 6%
Frequently asked questions
What is a cap rate?
The capitalization rate is the net operating income of a property divided by its value, shown as a percent. It estimates the unleveraged annual return if you bought the property in cash.
How is the cap rate calculated?
Cap rate equals net operating income divided by property value, times 100. For example, 24,000 of NOI on a 400,000 property is a 6 percent cap rate.
What counts as net operating income?
NOI is the gross annual income from the property minus operating expenses such as taxes, insurance, maintenance, property management and vacancy. It excludes mortgage payments and income taxes.
Is a higher cap rate better?
A higher cap rate means more income relative to price, but it often signals higher risk or a less desirable area. A lower cap rate usually reflects a safer, more sought-after property.
Can I find a property value from a target cap rate?
Yes. Enter the NOI and your target cap rate and leave the value blank. The calculator divides NOI by the cap rate to estimate the price that delivers that return.
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