Cap Rate Calculator: Evaluate Any Investment Property in Seconds

Cap rate is one of those numbers that separates investors who know what they're doing from people who just chase gross rent. It's the single fastest way to compare two properties on equal footing — regardless of how they're financed.

The CalcHub Cap Rate Calculator takes your property's net operating income and value, and outputs the cap rate instantly. It also works in reverse: enter your target cap rate and NOI to find out what you should pay.

The Formula

Cap Rate = Net Operating Income ÷ Current Market Value × 100

That's it. But the NOI (net operating income) is where most people mess up.

NOI = Gross Rental Income − Vacancy − Operating Expenses

Operating expenses include: property taxes, insurance, property management fees, maintenance, repairs, utilities (if landlord-paid), and any HOA. What it does NOT include: mortgage payments, depreciation, or income tax. Cap rate is pre-financing.

What's a Good Cap Rate?

This is market-dependent, but here are general benchmarks:

Market Type	Typical Cap Rate Range	Investor Interpretation
Major gateway city (NYC, LA, SF)	3–5%	High appreciation expected; lower income return
Mid-market city (Atlanta, Dallas)	5–7%	Balanced risk/return
Secondary/tertiary markets	7–10%	Higher income yield, more risk
Distressed/value-add property	9–12%+	Higher risk, turnaround play
Class A multifamily	4–6%	Institutional quality, stable

A higher cap rate isn't automatically better — it often signals higher risk, older property, tougher tenant market, or a location with limited appreciation potential.

Worked Example

You're looking at a 4-unit apartment building listed at $700,000.

• Gross rent (4 units × $1,200/mo × 12): $57,600/year
• Vacancy allowance (7%): −$4,032
• Property taxes: −$6,500
• Insurance: −$2,400
• Property management (8%): −$4,608
• Maintenance/repairs: −$3,600
• NOI: $36,460

Cap Rate = $36,460 ÷ $700,000 = 5.2%

Is that good? In a major metro, probably reasonable. In a rural market, maybe you'd pass and look for 8%.

Using Cap Rate in Reverse: What Should I Pay?

If you know the NOI and your target cap rate, you can work backwards:

Max Purchase Price = NOI ÷ Target Cap Rate

If the NOI above is $36,460 and you want a 7% cap rate:
$36,460 ÷ 0.07 = $520,857 — meaning the asking price of $700,000 is above your threshold at 7%.

This is genuinely useful in negotiations. You can show sellers why their price doesn't work at market cap rates.

Cap Rate vs. Cash-on-Cash Return

Cap rate ignores financing. Cash-on-cash return shows what you actually earn on the money you put in (down payment). If you finance the property, your cash-on-cash can be higher or lower than cap rate depending on your interest rate:

• If mortgage rate < cap rate: leverage works in your favor
• If mortgage rate > cap rate: negative leverage — financing hurts returns

Does cap rate account for appreciation?

No — it's purely an income-based metric. A property in a fast-appreciating market might have a low cap rate but still be an excellent investment because of equity gains over time. Cap rate is best for comparing income properties in similar markets.

How do I handle a property with no current tenants?

Use market rent for comparable units — the cap rate based on "pro forma" income. Just be honest with yourself about how quickly you can lease it up and what realistic rents look like. Sellers sometimes use inflated pro forma numbers.

Should I include mortgage payments in my NOI calculation?

No. Cap rate is always calculated before debt service. That's intentional — it lets you compare properties independent of how you finance them. Use cash-on-cash return for a post-financing picture.

Related Tools

• Cash-on-Cash Calculator — return after financing costs
• Rental Yield Calculator — simpler gross yield metric
• DSCR Calculator — lender's coverage ratio for investment loans