Cap Rate Calculator

Many investors think a cap rate is the total return on a property. It is not. A cap rate is a snapshot of current yield, the ratio of a property’s net operating income (NOI) to its purchase price, expressed as a percentage. It ignores financing, taxes, future appreciation, and capital expenditures. Use this cap rate calculator to enter a deal’s numbers and get NOI and cap rate right away, then interpret that result against a market benchmark. The number alone tells you nothing; the number compared to a current survey tells you whether the deal is priced above or below market.

Enter the property purchase price and the gross annual rental income. Then itemize operating expenses: property taxes, insurance, maintenance and repairs, property management, utilities, HOA fees, and any other costs you carry annually. Set the expected vacancy rate, a 0% vacancy assumption is a red flag to any experienced buyer. The calculator derives effective gross income by subtracting vacancy loss from gross income, then subtracts total operating expenses to find NOI.

You also have a Custom NOI input. Use this when you already have a stabilized NOI from audited operating statements or a pro-forma you trust. The calculator then applies the cap rate formula: NOI divided by property value, multiplied by 100.

Toggle the expense breakdown to see each cost as a percentage of gross income and of total expenses. The rule-of-thumb ranges (Class A, B, C) are a common benchmark, not survey data. For real market comparisons, use the CBRE U.S. Cap Rate Survey (latest half-year edition) or the RCA/MSCI Capital Trends Report for transaction-based rates.

The formula is a mathematical identity and will not change: Cap Rate = (Net Operating Income ÷ Property Value) × 100. The Appraisal Institute, in The Appraisal of Real Estate (direct capitalization chapter), defines the overall capitalization rate as the ratio of a single year’s NOI to the property’s value. Geltner et al., in Commercial Real Estate Analysis and Investments, make the same point: the cap rate is a current yield, not a total return.

NOI itself is effective gross income minus operating expenses. Effective gross income starts with potential gross income and subtracts vacancy and collection losses. Operating expenses include property taxes, insurance, utilities, management, maintenance, and HOA fees. They do not include mortgage payments, debt service, depreciation, capital expenditures, or income taxes.

Assume a property with these inputs:

• Purchase Price: $1,000,000
• Gross Annual Rental Income: $120,000
• Vacancy Rate: 5%
• Property Taxes: $12,000
• Insurance: $3,000
• Maintenance & Repairs: $4,000
• Property Management: $6,000
• Utilities (owner-paid): $2,000
• HOA Fees: $1,000
• Other Expenses: $1,000

Step 1: Effective Gross Income
Gross Income: $120,000
Vacancy Loss: $120,000 × 5% = $6,000
Effective Gross Income: $120,000, $6,000 = $114,000

Step 2: Total Operating Expenses
Property Taxes: $12,000
Insurance: $3,000
Maintenance: $4,000
Management: $6,000
Utilities: $2,000
HOA: $1,000
Other: $1,000
Total Operating Expenses: $29,000

Step 3: Net Operating Income
NOI = $114,000, $29,000 = $85,000

Step 4: Cap Rate
Cap Rate = ($85,000 ÷ $1,000,000) × 100 = 8.5%

An 8.5% cap rate on this property places it in the Class B to Class C range on the rule-of-thumb scale. Against the CBRE H2 2025 all-property benchmark of 6.4%, this property offers a higher yield, which may compensate for higher assumed risk.

Benchmarking Against Published Surveys

A 6.5% cap rate on a property in one market is not the same as a 6.5% cap rate in another. Compare your result against a current, published survey for your specific metro area and property type. The CBRE U.S. […] The actual rate in force is published by CBRE semi-annually; check their latest release.

Transaction Data vs. Survey Data

Transaction-based data from the RCA/MSCI Capital Trends Report typically shows rates 50 to 150 basis points higher than survey rates, because surveys often reflect asking prices and vanilla assumptions while closed deals include leasing costs, tenant improvements, and other frictions. […] A property with a 6% cap rate and a 35% expense ratio may be a better deal than one with a 7% cap rate and a 50% expense ratio, because the higher expenses eat into the cash flow.

Three Hard Limits

The cap rate has three hard limits that new investors miss. […] It cannot model rent growth, expense inflation, or a lease rollover that resets income in three years. […] A property that needs a new roof in year two will produce less actual cash flow than the NOI suggests, because the roof is funded from reserves, not from the operating budget.

Common Failures to Avoid

The most common failure: using trailing NOI, the actual income from the last 12 months, without adjusting for a one-time repair or a non-market rent. […] Another failure: using a survey cap rate as a target without adjusting for property condition, location, or lease rollover. A generic number applied to a specific asset is a guess.

Moving Beyond the Snapshot

To move beyond the snapshot, build a discounted cash flow (DCF) model that includes a terminal cap rate and capital expenditure reserves. […] That table, not the single cap rate number, is what tells you whether the deal can survive a 50-basis-point shift in market rates.