Rental Property Cap Rate Calculator
Find a property's capitalization rate from its net operating income — then flip it around to see the price a target cap rate supports. The first number most investors run on a buy-and-hold deal.
The property's unleveraged yield — NOI divided by price, ignoring your financing.
What's it worth to you?
Enter the cap rate you require and see the price that delivers it, given this NOI.
| Required cap rate | Supported value |
|---|---|
| 5% | $390,224 |
| 6% | $325,187 |
| 7% | $278,731 |
| 8% | $243,890 |
| 9% | $216,791 |
| 10% | $195,112 |
Cap rate vs. cash-on-cash
Cap rate measures the property itself; cash-on-cash measures your actual return after financing. When your loan rate is below the cap rate, leverage lifts cash-on-cash above it — and drags it below when the rate is higher.
How the NOI is built (annual)
NOI excludes your mortgage, income tax, and the CapEx reserve — which is why cap rate compares cleanly across differently-financed deals.
What cap rate tells you
Cap rate is the property's yield if you paid all cash: NOI ÷ value. Because it ignores financing, it's the cleanest way to compare two properties — a 7% cap rate is a 7% cap rate whether you put 20% down or buy outright.
It's a starting point, not the whole story. Cap rate says nothing about your loan, your cash return, or future growth — which is why this tool also shows cash-on-cash return beside it, and why the full rental property analysis adds cash flow, DSCR, and a verdict.
The cap rate formula
Cap rate is one of the simplest formulas in real estate:
Cap rate = Net Operating Income ÷ Property Value × 100Net operating income (NOI) is your annual rental income after vacancy and operating expenses, but before the mortgage, income tax, and capital reserves. For example, a property with $18,000 of NOI priced at $240,000 has a cap rate of 18,000 ÷ 240,000 = 7.5%. The calculator builds the NOI from the rent and expenses you enter, so you don't have to work it out by hand.
Because the mortgage is excluded, two investors buying the same property at the same price get the same cap rate — even if one pays cash and the other borrows 80%. That's exactly what makes it useful for comparing deals.
What's a good cap rate?
For residential rentals, cap rates commonly land between about 4% and 12% — but "good" depends entirely on the market and your goals. There is no universal target.
- Lower cap rates (roughly 4–6%) — Expensive, stable, high-demand metros. You accept less income per dollar in exchange for lower risk and stronger appreciation.
- Mid-range (6–8%) — Many solid buy-and-hold markets sit here — a balance of income and growth.
- Higher cap rates (8%+) — More income relative to price, but usually more risk, older properties, or slower-growth areas. The extra yield is compensation for something.
The most useful benchmark isn't a national number — it's the cap rate of comparable properties in the same neighborhood. A 6% cap rate is excellent in a market where everything trades at 4%, and poor where similar properties yield 9%.
How cap rate and value move together
Rearranging the formula reveals why cap rate is really a valuation tool: Value = NOI ÷ Cap rate. That relationship drives two of the most important levers in real estate.
Raise the NOI, raise the value. At a 7% market cap rate, every extra $1,000 of annual net income adds about $14,300 of value ($1,000 ÷ 0.07). That's why increasing rent or trimming expenses is so powerful — it compounds into the sale price, not just the monthly cash flow.
When market cap rates move, values move inversely. If prevailing cap rates rise from 6% to 7% — often as interest rates climb — a property earning $18,000 of NOI falls from $300,000 to about $257,000, with no change to the building itself. This is the "cap rate expansion" that can quietly erase equity in a rising-rate market, and it's why the price you pay matters as much as the income.
Use the value-at-target-cap-rate tool above to see this directly: enter the cap rate you require and watch the supported price move.
The limits of cap rate
Cap rate is a starting point, not a full analysis. Because it ignores financing, it tells you nothing about your actual cash return or whether the rent covers the loan — for that you need cash flow and DSCR. It also says nothing about appreciation or your total return over time.
It's also only as honest as the NOI behind it. A seller's "cap rate" often rests on optimistic rent and understated expenses; recompute it with realistic, verified numbers before you trust it. Cap rate compares properties well — it just isn't the whole story on any single one. When you're ready for that, run the full rental property analysis.
Frequently asked questions
What is a good cap rate for a rental property?
Residential cap rates commonly fall between about 4% and 12%. Lower cap rates usually mean lower-risk, higher-priced markets (and more reliance on appreciation); higher cap rates mean more income relative to price but often more risk or work. 'Good' is relative to your market and strategy — compare a property to nearby comparable rentals rather than to a national number.
How do you calculate cap rate?
Cap rate = net operating income (NOI) ÷ property value, expressed as a percent. NOI is your effective rental income minus operating expenses — but before the mortgage, income tax, and capital-expenditure reserves. This calculator builds the NOI for you from the rent and expenses you enter.
What's the difference between cap rate and cash-on-cash return?
Cap rate ignores financing — it measures the property's own yield, so it compares deals on equal footing. Cash-on-cash return measures the return on the actual cash you invest after taking out a loan. When your interest rate is below the cap rate, leverage pushes cash-on-cash above it; when it's higher, cash-on-cash falls below.
Does cap rate include the mortgage?
No. Cap rate is deliberately unleveraged — it excludes your mortgage payment entirely. That's what makes it useful for comparing properties regardless of how each one is financed. Use cash-on-cash return or DSCR when you want to see the effect of a loan.
Should I use purchase price or market value for cap rate?
Both are valid, as long as you're clear which one you mean. Cap rate on purchase price shows the yield you're buying; cap rate on current market value shows the yield the market is pricing. This tool shows the purchase-price cap rate and, when you enter an after-repair value, the value-based cap rate too.
What's the difference between cap rate and interest rate?
They measure different things but interact. Cap rate is the property's yield; the interest rate is the cost of your loan. When the cap rate is higher than your interest rate, borrowing adds to your return (positive leverage); when it's lower, leverage drags your return down. Rising interest rates also tend to push cap rates up over time, which lowers what buyers will pay for the same income.
Is a higher or lower cap rate better?
It depends on what you value. A higher cap rate means more income per dollar of price — attractive for cash flow, but often found in higher-risk or slower-growth areas. A lower cap rate means you're paying more for each dollar of income, common in stable, appreciating markets. Neither is universally 'better'; match the cap rate to your strategy and risk tolerance.