Cap Rate Calculator

Calculate the capitalization rate for any investment property. Enter income and expenses to see NOI and cap rate instantly — no financing required.

$
$
$
Cap Rate
6.50%
Strong investment
Net Operating Income
$26,000
Monthly NOI
$2,167
Gross Rent Multiplier
11.1x
Expense Ratio
27.8%
Rule of thumb: A cap rate of 4-10% is typical for residential rentals. Higher cap rates mean better returns but often higher risk or lower-quality areas.

How to Use This Cap Rate Calculator

Enter three values to get your cap rate instantly:

The calculator instantly shows your cap rate, NOI, Gross Rent Multiplier, and expense ratio.

The Cap Rate Formula

NOI = Annual Rental Income − Annual Operating Expenses

Cap Rate = NOI / Property Value × 100

Example: $36,000 rent − $10,000 expenses = $26,000 NOI
Cap Rate = $26,000 / $400,000 × 100 = 6.5%

Cap rate excludes mortgage payments because it measures the property's intrinsic return — independent of how it's financed. This makes it the standard tool for comparing properties across different purchase structures.

Gross Rent Multiplier (GRM)

GRM = Property Price / Annual Gross Rent. A GRM of 10 means you're paying 10 years' worth of gross rent. Lower GRM = potentially better value. GRM is a quick screening tool; cap rate is more precise.

Example: Comparing Two Properties

Property A vs Property B

Property AProperty B
Purchase Price$400,000$300,000
Annual Rent$36,000$24,000
Annual Expenses$10,000$8,000
NOI$26,000$16,000
Cap Rate6.5%5.3%
GRM11.1x12.5x

Property A has a higher cap rate and lower GRM — stronger investment metrics. But location, condition, and growth potential also matter.

Frequently Asked Questions

It depends on the market. In expensive coastal cities (NYC, SF, LA), 3-5% is typical — investors accept lower yields for appreciation and stability. In mid-tier markets, 5-8% is achievable. In rural or higher-risk areas, 8-12%. There's no universal "good" cap rate — compare to similar properties in the same market.
No. Cap rate is calculated before financing costs. This is intentional — it measures the property's return on value, not the investor's return on equity. To account for financing, use cash-on-cash return instead.
Include: property taxes, landlord insurance, property management (8-12% if applicable), ongoing maintenance and repairs, vacancy allowance (5-8%), and capital expenditure reserves for big-ticket items. Exclude: mortgage payments, income taxes, and depreciation.
When interest rates rise, investors demand higher cap rates (lower property prices relative to income) because alternative investments become more competitive. This is why property values often decline when rates increase — the market re-prices to restore attractive cap rates.

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