Cap Rate Calculator
Turn net operating income and a price into a capitalisation rate, and back again.
Result
Cap rate: 7.38%
A cap rate ignores financing entirely, so two buyers paying the same price for the same property share a cap rate and can still see completely different cash returns.
- Value at your target rate
- $337,451.43Estimate
- Net operating income a month
- $1,968.47
https://calcgallery.com/real-estate/cap-rate-calculator/
Results are arithmetic from the numbers you enter, not investment, lending, tax or valuation advice. The site supplies no rents, prices, cap rates or market data, and whether a deal is sound depends on facts no calculator can see. Read the full disclaimer
How to use the Cap Rate Calculator
- Enter the annual net operating income, which is income after operating costs and before any mortgage.
- Enter the purchase price or the value you are testing.
- Set a target rate to see what price that same income would justify.
Income divided by price
The capitalisation rate is the simplest statement of what a property yields before financing.
cap rate = net operating income ÷ valuevalue = net operating income ÷ cap rateJPMorgan Chase describes it as an assessment of the yield of a property over one year, calculated by dividing net operating income by asset value. The identity runs in both directions, which is why the same page answers “what does this price yield” and “what price does this yield justify”.
What it deliberately leaves out
A cap rate says nothing about leverage. That is its strength when comparing buildings and its weakness when comparing deals. The buyer who borrows 80% at a rate above the cap rate has bought negative leverage; the buyer paying cash has bought the cap rate itself. Both see the same number on this page.
It is also a single-year measure. It assumes nothing about rent growth, expense inflation or what the building is worth later, and this site supplies none of those assumptions.
Reading it against gross rent
The gross rent multiplier answers a related question without any expense data. It is quicker and cruder: two properties with the same rent and price share a multiplier however differently they run. Where operating costs differ — an older building, a different split of who pays utilities — the cap rate is the one that notices.
With your numbers
- Cap rate = $23,621.60 ÷ $320,000.00 = 7.38%
- At a target of 7% the same income implies $337,451.43
- Financing is not part of this: the same property has one cap rate whatever the buyer borrows
Quick reference
A cap rate ignores financing entirely, so two buyers paying the same price for the same property share a cap rate and can still see completely different cash returns.
| Example | Cap rate |
|---|---|
| Worked example at $320,000 | 7.38% |
| Same income, higher price | 5.91% |
| Same income, lower price | 9.09% |
| Small condo | 5.58% |
| Small multifamily | 7.82% |
| Low-yield prime property | 3.5% |
Common questions about the Cap Rate Calculator
- Does the cap rate account for my mortgage?
- No, and that is the point. A cap rate describes the property, not the purchase. Two buyers paying the same price for the same building have the same cap rate whether one pays cash and the other borrows 80%.
- What is a good cap rate?
- This site does not say. A rate that looks attractive in one market and building type is unremarkable in another, and a higher rate often reflects risk rather than a better deal. Compare against properties you actually know.
- Which income should I enter?
- Net operating income: rent after vacancy and operating costs, before debt service, depreciation and capital improvements. The NOI calculator works it out if you have the underlying numbers.
- Why does the implied value change so much with a small rate change?
- Because value is income divided by the rate, and dividing by a small number amplifies changes. Moving a target from 7% to 6.5% raises the implied value by about 8% on the same income.