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
| Field | What to enter |
|---|---|
| Annual rental income | Amount in your currency |
| Vacancy rate | In % |
| Annual operating expenses | Amount in your currency |
| Property value | Amount in your currency |
| Target cap rate | In % |
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 income | Cap rate (%) |
|---|---|
| 30,000 | 1.62 |
| 45,000 | 3.81 |
| 60,000 | 6 |
| 75,000 | 8.19 |
| 90,000 | 10.38 |
| 120,000 | 14.77 |
Formula
Effective gross income = gross rent × (1 − vacancy rate)NOI = effective gross income − operating expensesCap rate = NOI ÷ property value; value at target cap = NOI ÷ target cap rateWorked 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.
Frequently asked questions
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).