# Cap Rate Calculator (Capitalization Rate)

URL: https://speedycalculator.com/calculators/finance/cap-rate/
Last updated: 2026-10-25

> The cap rate calculator works out a rental property's capitalization rate – net operating income divided by property value – from gross rent, vacancy and operating expenses, and the value implied by a target cap rate.

## Inputs

- Annual rental income
- Vacancy rate (%)
- Annual operating expenses
- Property value
- Target cap rate (%)

## Results

- Effective gross income
- Net operating income (NOI)
- Cap rate
- Value at the target cap rate

## Formula

```
Effective gross income = gross rent × (1 − vacancy rate)
NOI = effective gross income − operating expenses
Cap rate = NOI ÷ property value; value at target cap = NOI ÷ target cap rate
```

## Explanation

The cap rate is the unlevered yield of a property – the return if you paid all cash. Typical cap rates run from about 4–5% for prime city apartments to 8–10% for riskier properties. Mortgage payments are not operating expenses.

### How to use the Cap Rate Calculator

- **Annual rental income**
- **Vacancy rate**
- **Annual operating expenses**
- **Property value**
- **Target cap rate**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the annual rental income, vacancy rate, operating expenses and property value.

### Tips

- Get a written loan estimate and compare the APR, not just the interest rate.
- Include property tax, insurance, HOA fees and maintenance in your monthly budget.
- A larger down payment lowers the payment and can remove mortgage insurance.
- Rates change daily – use a current quote for the most accurate result.

### Common mistakes to avoid

- Looking only at the monthly payment instead of the total cost of the loan.
- Forgetting closing costs and fees.
- Assuming home prices always rise.

### Inputs explained

FieldWhat to enterAnnual rental incomeAmount in your currencyVacancy rateIn %Annual operating expensesAmount in your currencyProperty valueAmount in your currencyTarget cap rateIn %

### What each result means

- **Effective gross income** = [Annual rental income]×(1 - [Vacancy rate]÷100)
- **Net operating income (NOI)** = [Effective gross income] - [Annual operating expenses]
- **Cap rate** = [Net operating income (NOI)]÷[Property value]×100
- **Value at the target cap rate** = [Net operating income (NOI)]÷([Target cap rate]÷100)

### Example values

How the main result changes when **Annual rental income** changes and everything else stays at the example values above:

Annual rental incomeCap rate (%)30,0001.6245,0003.8160,000675,0008.1990,00010.38120,00014.77

## Worked example

Inputs — Annual rental income: $60,000; Vacancy rate: 5 %; Annual operating expenses: $18,000; Property value: $650,000; Target cap rate: 7 %.

Results — Effective gross income = $57,000.00; Net operating income (NOI) = $39,000.00; **Cap rate = 6 %**; Value at the target cap rate = $557,142.86.

## FAQ

**What is a good cap rate?**
5–10% is common; higher cap rates mean higher yield but usually higher risk.

**Does cap rate include the mortgage?**
No – it's based on NOI before debt service.

**How do cap rates relate to value?**
Value = NOI ÷ cap rate, so lower cap rates mean higher prices.

**What formula does the Cap Rate Calculator use?**
Effective gross income = gross rent × (1 − vacancy rate).