Cap Rate Calculator
Cap rate measures a property's return as if bought in cash — the fastest way to compare deals at a glance, independent of financing.
Cap rate
7.0%
Net operating income
$21,000
What is cap rate?
Capitalization rate (cap rate) is a property's net operating income divided by its purchase price, expressed as a percentage. It answers one question: if you paid cash for this property today, what annual yield would it produce before financing?
The formula
Cap Rate = Net Operating Income ÷ Purchase Price. Net operating income is rental income minus operating expenses — before any mortgage payment.
Why it matters
Because it excludes financing, cap rate lets you compare two properties, or a property against its market, on equal footing — no two buyers finance a deal the same way, but cap rate strips that variable out entirely.
Frequently asked questions
What is a good cap rate?
There's no universal answer — it depends heavily on market and property type. Higher cap rates generally mean higher cash flow but often come with higher risk (rougher areas, older properties); lower cap rates are common in stable, high-demand markets where investors accept less yield for more safety. Compare a deal's cap rate against similar properties in the same market, not a fixed number.
Does cap rate include the mortgage payment?
No. Cap rate is calculated as if the property were purchased entirely in cash — it deliberately excludes financing costs, so you can compare properties on their own merits regardless of how each buyer finances them.
What counts as an operating expense?
Property taxes, insurance, maintenance, property management fees, HOA dues, and a vacancy allowance. It does not include mortgage principal or interest, and does not include capital expenditures (like a new roof) — those are usually analyzed separately.
Want the full picture?
Cap rate is one metric. Monte Estate adds cash flow, cash-on-cash return, IRR, and a 10,000-trial Monte Carlo simulation — free to start, no credit card required.
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