Cap Rate Calculator
Calculate capitalization rate from property value and net operating income, with an operating-expense breakdown.
Calculation breakdown
What cap rate measures
Capitalization rate compares a property’s annual net operating income with its value. Because NOI is calculated before mortgage payments, cap rate can help compare property operating performance without mixing in each investor’s financing structure.
Expenses should include recurring operating costs but generally exclude mortgage principal and interest, income taxes, depreciation and major capital improvements.
Frequently asked questions
Does cap rate include the mortgage?
No. Cap rate is based on property NOI before financing.
Is a higher cap rate always better?
Not necessarily. Higher expected returns can accompany higher risk, weaker locations or greater operating uncertainty.
What is NOI?
Net operating income is effective property income minus recurring operating expenses before financing and income taxes.
Results are estimates for informational purposes only. Verify important financial, tax, real-estate or investment decisions with a qualified professional.