Calculate the capitalization rate on any rental property to compare investment opportunities and assess market value independently of financing.
Cap rate (capitalization rate) is the most widely used metric for comparing rental property investments. It measures the annual return a property generates relative to its value — independent of how it's financed. A higher cap rate means a higher return, but typically comes with higher risk or a less desirable location. This calculator gives you the cap rate instantly from your income and expense figures.
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Cap rate = Net Operating Income ÷ Property Value. NOI is your gross rent minus vacancy loss and operating expenses — but not mortgage payments. Cap rate is a financing-neutral metric, which makes it ideal for comparing properties regardless of how each is purchased.
Property purchased for $250,000. Gross annual rent $24,000, 5% vacancy = $1,200 loss, operating expenses $6,000. NOI = $24,000 - $1,200 - $6,000 = $16,800. Cap rate = $16,800 ÷ $250,000 = 6.72%.
Cap rates vary significantly by market and property type. In high-cost urban markets (NYC, SF, LA), 3–5% is typical. In secondary and tertiary markets, 6–9% is common. In rural or high-risk markets, 10%+ may appear. A "good" cap rate depends on your market, risk tolerance, and investment goals — lower cap rates often reflect lower risk and stronger appreciation potential.