Free Tools Cap Rate Calculator

A Cap Rate Calculator is a tool used in real estate investing to estimate the capitalization rate (cap rate) of an income-producing property.

The cap rate measures the property’s annual return based on its income and purchase price, without considering financing (mortgages).

Formula

$PV = \frac{FV}{(1 + r)^n}$PV=(1+r)nFV​

$PV=\frac{\text{\$100.00}}{(1+0.08)^{5}}=\text{\$68.06}$PV=(1+0.08)5$100.00​=$68.06

$r$r

%

$n$n

yrToday5 years later$68.06$100.00PV (present value)FV (future value)8% discount rate

For cap rate specifically:$$\text{Cap Rate} = \frac{\text{Net Operating Income (NOI)}}{\text{Property Value or Purchase Price}} \times 100\%$$Cap Rate=Property Value or Purchase PriceNet Operating Income (NOI)​×100%

Where:

• Net Operating Income (NOI) = Rental income − Operating expenses
• Operating expenses typically include property taxes, insurance, maintenance, management fees, etc.
• Mortgage payments are not included in NOI.

Example

Suppose:

• Annual rental income = $30,000
• Annual operating expenses = $10,000
• Property purchase price = $250,000

NOI:$$30,000 – 10,000 = 20,000$$30,000−10,000=20,000

Cap Rate:$$\frac{20,000}{250,000} \times 100 = 8\%$$250,00020,000​×100=8%

So the property’s cap rate is 8%.

Why Investors Use Cap Rate

• Compare different investment properties.
• Estimate potential returns.
• Gauge relative risk:
  • Lower cap rates (e.g., 3–5%) often indicate lower-risk, higher-demand properties.
  • Higher cap rates (e.g., 8–12%+) may indicate higher returns but potentially higher risk.

What a Cap Rate Calculator Does

You enter:

1. Property price/value
2. Annual rental income
3. Annual operating expenses

The calculator automatically computes:

• Net Operating Income (NOI)
• Cap Rate (%)