Cap Rate Calculator
Size up a rental in seconds. Enter the price, rent, operating expenses, and financing, and the calculator returns the cap rate (with a meter showing where it sits among market bands), the step-by-step NOI breakdown, monthly cash flow after the mortgage, and cash-on-cash return — plus how the deal stacks up against the 1% and 50% rules. Or flip the mode and solve the most you should pay to hit your target cap rate. All in your browser.
Cap rate measures the property's return independent of financing (NOI ÷ price) — good for comparing deals. Cash-on-cash measures the return on the actual cash you put in, after the mortgage. Operating expenses should include taxes, insurance, maintenance, property management, and HOA — but not the mortgage (that's financing). Cash invested here is the down payment only; add closing and rehab costs for a truer figure. "Typical" cap-rate bands vary by market — prime metros trade lower, riskier areas higher.
Cap rate for the deal, cash-on-cash for your money
These two numbers answer different questions. Cap rate is about the property: what return does it produce on its own, before financing? That makes it the right tool for comparing one building against another. Cash-on-cash is about you: given the cash you actually put down and the mortgage you took, what return do you earn on your money? Use cap rate to shop, cash-on-cash to decide.
From asking price to offer price
Cap rate isn't just a grade for a listed price — it's how income property is actually priced. Since cap rate = NOI ÷ price, a target return implies a maximum price: NOI ÷ target cap. The What should I pay mode does exactly that. Work out the realistic NOI from rent, vacancy, and expenses, decide the cap rate that compensates you for the market and the risk, and the result is your walk-away number. Demand one point more and the price drops sharply; accept one point less and it jumps — the calculator shows both so you can see the negotiating range.
Garbage in, garbage out — respect the expenses
The most common way to fool yourself on a rental is to lowball operating expenses. Beyond the obvious taxes and insurance, real properties have maintenance, capital expenditures (roofs, HVAC), management, and vacancy between tenants. A deal that looks great at a 3% vacancy and no maintenance can turn cash-flow negative under realistic assumptions. Pad the expenses before you trust the cap rate.
Related
- Personal finance hub — all our money calculators and guides
- Mortgage calculator — the financing behind the property
- ROI calculator — total return on an investment
- Loan calculator — amortization for any fixed loan
FAQ
Is anything I enter sent to a server?
No. The calculator runs entirely in your browser — open DevTools → Network and confirm. Your deal numbers never leave the tab.
What is cap rate?
Capitalization rate = net operating income (NOI) ÷ purchase price. It's the unleveraged annual return a property throws off, ignoring how you finance it — which makes it the standard way to compare deals on an apples-to-apples basis. A 6% cap rate means the property's NOI is 6% of its price.
What counts as an operating expense (and what doesn't)?
Operating expenses include property taxes, insurance, maintenance and repairs, property management, HOA fees, and a vacancy allowance. They do not include the mortgage — debt service is financing, not an operating cost, and leaving it out is what keeps cap rate comparable across deals regardless of how each is financed. The mortgage does factor into cash-on-cash return.
What's the difference between cap rate and cash-on-cash return?
Cap rate measures the property's return as if you paid all cash (NOI ÷ price). Cash-on-cash measures the return on the actual cash you invested, after the mortgage: (NOI − debt service) ÷ cash invested. Leverage can push cash-on-cash well above the cap rate when the loan rate is below the cap rate — and below zero when it isn't.
Is a higher cap rate always better?
Not necessarily. A high cap rate often signals higher risk or a less desirable location — the market prices in lower growth or more hassle. Prime properties in strong markets trade at low cap rates because buyers accept a lower current return for stability and appreciation. The meter's bands are rough guides: under 4% is low-yield, 4–7% is typical for many metros, 7–10% is strong, and above 10% usually means the market sees real risk. Judge cap rate against comparable properties in the same market, not in the abstract.
How do I work out what I should pay for a property?
Flip the calculator to What should I pay. Enter the rent, expenses, and vacancy to establish the NOI, set the cap rate you want to earn, and it inverts the formula: max price = NOI ÷ target cap. A property producing $18,960 of NOI is worth at most $316,000 to a buyer who demands a 6% cap — every dollar above that price means accepting a lower return. It also shows the price one point stricter and one point looser, which is a useful negotiating range.
What are the 1% rule and the 50% rule?
Two screening shortcuts, not laws. The 1% rule: monthly rent should be at least 1% of the purchase price (a $300,000 house should rent for ~$3,000/mo) — few deals in expensive metros pass it, but the further below 1% you are, the harder cash flow gets. The 50% rule: over the long run, expect roughly half of gross rent to go to operating costs (taxes, insurance, maintenance, management, vacancy — not the mortgage). The calculator shows your property's actual rent-to-price percentage and the cost share you've budgeted, so you can see how your assumptions compare to the rules of thumb.