Cap Rate
Capitalization rate measures a property's unlevered yield — its net operating income as a percentage of its value. Enter both to calculate it.
How this is calculated
Cap rate = net operating income (NOI) ÷ property value, expressed as a percentage. NOI is annual rental income minus operating expenses, before mortgage payments and income tax. A higher cap rate generally signals higher yield and higher risk; a lower cap rate signals a more premium, stabilized asset.
Notes & assumptions
- NOI excludes mortgage payments, capital expenditures, and income tax.
- Cap rate is a snapshot; it does not capture rent growth or lease rollover.
- Market cap rates vary by property type, location, and interest rates.
Frequently asked questions
What is a good cap rate?
It depends on the market and asset. Lower cap rates reflect premium, lower-risk properties; higher cap rates reflect higher yield and higher risk. Compare like-for-like.
Does cap rate include my mortgage?
No. Cap rate is unlevered — it uses net operating income before financing. Use cash-on-cash return to factor in your loan.
How is NOI calculated?
NOI is gross rental income minus operating expenses (taxes, insurance, management, maintenance), before debt service, depreciation, and income tax.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
This calculator is for educational estimation only and is not tax, legal, or investment advice. Results are approximate and depend on assumptions that may not fit your situation; confirm any figures with your own CPA and attorney before acting. Securities are offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.