Cap Rate Calculator: Capitalization Rate and NOI for Rental Property
Cap rate (capitalization rate) is a property’s net operating income (NOI) divided by its purchase price or current value, shown as a percentage. A property bought for $500,000 that produces $35,000 a year of NOI has a 7% cap rate. It measures the property’s return before financing, so it ignores the loan and its payment.
Results
Net operating income (NOI) / yr
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Cap rate
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Value supported at target cap rate
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Educational estimate only, for business-purpose investment property. Not an appraisal, loan offer or commitment to lend.
Cap rate formula
Cap rate = NOI / property value x 100. NOI = gross annual rent - vacancy - annual operating expenses (taxes, insurance, management, maintenance, HOA, utilities you pay). Debt payments are not operating expenses.
How to use this calculator
- Enter the purchase price or current value.
- Enter gross monthly rent and a vacancy allowance.
- Enter annual operating expenses. Leave out mortgage payments.
- Optionally enter a target cap rate to see the price that NOI supports at that cap rate.
Cap rate questions
How do you calculate the cap rate?
Subtract vacancy and annual operating expenses from gross annual rent to get net operating income (NOI), then divide NOI by the purchase price or current value and multiply by 100. Mortgage payments are left out because cap rate measures the property, not the financing.
What does a 7.5% cap rate mean?
It means the property’s yearly NOI equals 7.5% of its price or value. A $400,000 property with a 7.5% cap rate produces $30,000 of NOI a year before any loan payments.
What is the cap rate if a building sells for $2,000,000 with an NOI of $150,000?
$150,000 divided by $2,000,000 is 0.075, so the cap rate is 7.5%.
Is 7% a good cap rate?
There is no single good cap rate. Cap rates differ by market, property type, condition and risk; a higher cap rate means more income per dollar of price but often comes with more risk. Compare a property against similar properties in the same area.
How is cap rate different from DSCR?
Cap rate compares NOI with the property’s value and ignores financing. DSCR (debt service coverage ratio) compares the property’s income with its loan payment, which is what DSCR lenders use to size a business-purpose rental loan. Use the GetDSCR DSCR calculator to check coverage once you know the loan terms.
Is this calculator an offer or appraisal?
No. It is an educational estimate from the numbers you enter for business-purpose investment property. It is not an appraisal, loan offer, rate quote or commitment to lend. GetDSCR is a Loan Daddy LLC brand; Loan Daddy LLC is a broker, not a lender.