Real estate & rental
Real Estate Cap Rate Calculator
Capitalisation rate from net operating income and price, the measure that ignores financing entirely.
Result
An arithmetic tool, not investment advice. Property returns depend on the local market, the condition of the building, financing terms and tax position, none of which a calculator can see. Verify the income and expense figures against actual statements rather than a seller's projection. Cap rate deliberately excludes mortgage payments, depreciation and income tax, so it measures the property rather than the deal. Two buyers paying the same price with different financing get the same cap rate and very different returns. Vacancy, repairs and capital expenditure are the three line items most often left out of a listing's numbers, and together they routinely account for 20% to 30% of gross rent. A pro forma that omits them is a marketing document, not an analysis.
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About this calculator
What is a good cap rate?
It is a market figure, not a target. Cap rates are low where prices are high and growth is expected, and high where risk or vacancy is. Compare only against similar properties in the same market.
Why exclude the mortgage?
Because cap rate describes the asset, not the buyer. Including financing would mean the same building had a different cap rate for every purchaser, which would make comparison impossible.
Should capital expenditure be in the expenses?
Not in NOI by convention, but it is real money. A roof and a furnace both wear out, and a cap rate that ignores reserves overstates what the property actually returns.
The formula
cap rate = net operating income / price; NOI = effective gross income - operating expenses
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