How it works
Capitalization rate compares a year of net operating income with the price or value of the property. It excludes loan payments so that two financing arrangements do not change the property-level ratio.
The formula
Keep currency, units and time periods consistent. Percentage inputs use percentage points (enter 5 for 5%). Results are rounded only for display; tiny nonzero values may use scientific notation. Undefined ratios are shown as unavailable.
$36,000 NOI on a $450,000 property gives 8.00% cap rate. A 7.5% target implies $480,000 value. A separate 9% target requires $40,500 NOI at the original value.
Calculation method
The reverse modes rearrange the same equation. Implied value holds income constant; required NOI holds property value constant. Neither is an appraisal or a prediction of achievable rent.
Interpretation
A negative NOI produces a negative cap rate. Side-by-side comparisons require consistent expense definitions and measurement periods; the tool does not rank properties as recommendations.
Limitations
All rents, values, vacancy, expenses and financing terms are your assumptions. Figures exclude income tax and appreciation. Inputs stay in your browser. These calculations do not predict loan approval or investment outcomes.
Method and reference sources
Method and content checked 2026-09-20. These sources provide background, not endorsement or professional certification. The formula and limitations above define this calculator.
- CFPB — How lenders calculate mortgage paymentsLoan principal-and-interest context; property operating expenses and underwriting assumptions are separate.
Frequently asked questions
Does cap rate include mortgage payments?
No. It compares net operating income with property value before financing. Changing leverage can change cash-on-cash return without changing that operating cap rate.
What is a worked example for Cap Rate?
$36,000 NOI on a $450,000 property gives 8.00% cap rate. A 7.5% target implies $480,000 value. A separate 9% target requires $40,500 NOI at the original value.