Capitalization rate
Cap rate calculator
The capitalization (cap) rate measures a property's unleveraged yield: the annual net operating income as a percentage of its price. Because it ignores financing, it's ideal for comparing properties against each other and against the market.
Cap rate
Net operating income (NOI) ÷ Purchase price × 100
Example: $18,000 NOI ÷ $300,000 price = 6.0% cap rate
How to calculate NOI correctly
NOI is gross rental income minus vacancy and all operating expenses — taxes, insurance, maintenance, management, utilities you pay, and HOA. It excludes mortgage payments, depreciation, and income taxes.
What is a good cap rate?
Cap rates vary by market, asset class, and risk. Stable properties in high-demand markets often trade at lower cap rates, while higher cap rates usually signal more risk or more management. Compare a property against recent sales of similar properties nearby rather than a single national rule of thumb.
How Envestor helps
- Automatic NOI and cap rate on every rental and commercial analysis
- Multifamily/commercial calculator with per-unit and per-square-foot metrics
- Side-by-side comparison of saved properties
- Investor reports that show the cap rate math transparently
Free account includes a property analysis. No credit card required.
Frequently asked questions
- Is a higher cap rate better?
- A higher cap rate means more income per dollar invested, but it often comes with more risk, older buildings, or weaker locations. 'Better' depends on your risk tolerance and strategy.
- Does cap rate include the mortgage?
- No. Cap rate is calculated before financing. Use cash-on-cash return to measure returns on a financed purchase.