Cap Rate Calculator

Frequently asked questions

How do you calculate cap rate?

Divide the net operating income by the property’s value and multiply by 100. A property worth $500,000 with $60,000 of rent and $20,000 of operating expenses has an NOI of $40,000 and a cap rate of 8.00%.

What is net operating income for cap rate?

A year of rent and other income minus operating expenses such as property tax, insurance, repairs and management. The mortgage payment, depreciation and income tax are left out. $36,000 of rent less $14,400 of expenses is $21,600 of NOI, a 7.20% cap rate on a $300,000 property.

Is cap rate the same as ROI?

No. A cap rate is one year of NOI over the value, as if the property were bought for cash. It ignores the mortgage, the down payment, appreciation and tax, which a return on investment or a cash-on-cash return takes into account. Two buyers of the same building see the same cap rate even if one borrowed most of the price.

How much is a property worth at a given cap rate?

Value = NOI ÷ cap rate. $25,000 of NOI is worth $416,667 at 6% and $312,500 at 8%. The calculator lists the values at 4%, 6%, 8% and 10% under the result.

Can a cap rate be negative?

Yes, when operating expenses are larger than the income, before any mortgage payment. An NOI of -$5,000 on a $200,000 property gives a cap rate of -2.50%. The calculator shows a zero or negative cap rate with a note rather than an error.

How do I include vacancy and expenses in the NOI?

Tick Work out the NOI from rent and expenses. The calculator takes the gross rent plus other income, removes the vacancy and credit loss percentage, then subtracts property tax, insurance, maintenance and repairs, property management and other operating expenses. $24,000 of rent with 5% vacancy is $22,800; less $3,000 of property tax that is $19,800 of NOI, a 13.20% cap rate on a $150,000 property. Leave the mortgage payment out.