Cap Rate Calculator
Cap rate, short for capitalization rate, tells investors the return they can expect on a real estate investment by comparing the property's net operating income to its current market value. Use this calculator to convert income and cost inputs into a transparent yield percentage so you can benchmark potential acquisitions or reposition existing holdings.
Inputs
Provide the annual rental income and operating expenses, then supply the current market value of the asset. The calculator derives net operating income and the resulting cap rate for a well-informed decision.
How the Cap Rate Works
Cap rate divides net operating income by the amount an investor would pay today, so it automatically adjusts for different pricing environments. A result of 5.2% means the property delivers $5.20 of NOI for every $100 invested, which is useful for comparing markets or asset classes. Always double-check that the market value reflects current leases, occupancy, and cap-ex additions.
Replace the income or expense inputs whenever leases roll over or utility costs change; a small swing in NOI can move the cap rate by several tenths of a percentage point.
Realistic Example
Imagine a multifamily building with $150,000 in annual rental income after concessions, $60,000 in recurring expenses such as property management and repairs, and a comparable sale value of $2,400,000. Plugging those numbers in yields a cap rate of 3.75%, making it easy to decide whether that yield fits your acquisition criteria.