Cap Rate Calculator
Derive NOI from gross rent, vacancy, and operating expenses, then either quote a cap against value or solve for the price that hits your target yield.
100% client-side. Inputs stay in your browser (ons-cap-rate-inputs).
Toggle between quoting a cap from value and backing into the price that clears your yield hurdle on the same NOI.
Cap rate
6.72%
6–8%, solid; value-add or secondary markets
NOI
$16,800
Effective gross income
$22,800
Vacancy loss
−$1,200
NOI waterfall
Cap rate spectrum (0–30% scale)
- <4% low yield
- 4–6% moderate
- 6–8% solid
- 8%+ high yield
How this tool works
The calculator starts by computing your net operating income. It takes your annual gross rent and subtracts vacancy loss to get effective gross income (EGI). Then it subtracts your annual operating expenses to arrive at NOI. Operating expenses include property tax, insurance, maintenance, and management fees. Mortgage payments are never included in a cap rate calculation because cap rate measures the property's income potential independent of how you finance it. In Calculate Cap Rate mode, the tool divides NOI by your property value and displays the result as a percentage. A higher cap rate means a higher income return relative to the price you paid. In Find Target Price mode, you enter your required cap rate and the tool divides NOI by that rate to find the maximum purchase price. This tells you the most you can pay while still hitting your return target. The spectrum bar compares your result against common market benchmarks: urban core properties typically sit below 4%, suburban residential falls in the 4-6% range, secondary markets and value-add properties land at 6-8%, and anything above 8% signals higher yield but often comes with higher risk.
Worked example
A property with $24,000 annual gross rent, 5% vacancy, and $6,000 in operating expenses produces an EGI of $22,800 and an NOI of $16,800. Against a $250,000 property value, that is a 6.72% cap rate, sitting in the solid 6-8% range on the spectrum bar. In reverse mode, the same NOI at a 6% target cap rate supports a maximum purchase price of $280,000, meaning at the actual $250,000 price you are getting a better deal than your target requires. If operating expenses rise to $10,000 per year, NOI drops to $12,800 and the cap rate falls to 5.12%, shifting the property from the solid range into the moderate range and showing why accurate expense estimates matter more than most investors expect.
Frequently asked questions
What is a good cap rate for a rental property?
It depends on the market and your risk tolerance. Urban core markets often see 3-5%. Suburban residential typically ranges 4-6%. Secondary markets and value-add properties run 6-8%. Above 8% usually means higher yield paired with higher risk, such as rural areas or properties needing significant work.
Does cap rate include mortgage payments?
No. Cap rate is calculated on NOI before debt service. It measures the property's income-generating ability independent of how you finance it. If you want to see the return on your actual cash invested after mortgage payments, use a cash-on-cash return calculator instead.
How do I use cap rate to set a purchase price?
Divide your NOI by your target cap rate. If NOI is $16,800 and you need a 7% cap rate, pay no more than $16,800 / 0.07 = $240,000. This is what the Find Target Price mode does automatically.
Can cap rate be negative?
Technically, yes. If your operating expenses exceed your effective gross income, NOI is negative, and the cap rate is negative. This means the property loses money before any mortgage payment. The calculator flags this with a warning.
How does vacancy rate affect cap rate?
Every percentage point of vacancy directly reduces your effective gross income and therefore your NOI. On a $24,000 gross rent property, going from 5% to 10% vacancy cuts EGI by $1,200 per year. That alone can drop your cap rate by half a percentage point or more, depending on property value.
Is cap rate the only metric I need to evaluate a rental property?
No. Cap rate ignores financing, appreciation, and tax benefits. It is one piece of the picture. Pair it with cash-on-cash return (to see leveraged yield), total ROI (to include appreciation and equity buildup), and a break-even analysis before making an investment decision.