What cap rate is
Capitalization rate is a property's net operating income divided by its price, expressed as a percent. It's the unlevered yield — what the property returns before any mortgage — and it lets you compare deals on an apples-to-apples basis.
The formula is NOI ÷ price × 100. The work is in the NOI, which is why this calculator builds it up from rent, vacancy, and expenses instead of asking you to know it upfront.
How NOI is built
Start with gross annual rent, subtract expected vacancy, then subtract operating expenses — property taxes, insurance, maintenance, and management. Do not subtract the mortgage; cap rate is deliberately financing-agnostic.
Example: $36,000 gross rent, 5% vacancy, $12,000 expenses on a $400,000 property. Effective income is $34,200, NOI is $22,200, so cap rate = $22,200 ÷ $400,000 = 5.55%.
Reading the number
A higher cap rate means more income per dollar of price — but often more risk or a weaker market. What counts as “good” is local, so compare against similar properties in the same area. For definitions, see what is cap rate and net operating income.
Cap rate is only as reliable as the rent you feed it. Anchor it with a free rent estimate for the address.