Cap Rate Calculator

Cap rate calculator for rental property deals (NOI based)

Cap rate is a fast way to compare rental property deals using income and operating costs, without mixing in mortgage payments. This calculator estimates net operating income (NOI) from rent, vacancy, and operating expenses, then calculates the capitalization rate: NOI divided by purchase price. It is most useful when you are deciding whether a property is priced fairly relative to its income potential.

The primary output is the cap rate percentage. Higher cap rates generally mean more income for each unit of purchase price, but that does not automatically mean a better deal. A property can have a high cap rate because it has higher risk, weaker demand, deferred maintenance, unstable tenants, or unusually low reported expenses. Use cap rate as a screening metric, then validate the numbers with real quotes, leases, and expense history.

To use the calculator quickly, enter the purchase price, monthly rent, and basic monthly operating expenses, then choose a vacancy percentage. If you have more detail, open the Advanced section to add taxes, insurance, HOA, owner-paid utilities, a management fee, and a maintenance reserve. The calculator will show your estimated NOI per year and per month, plus a simple valuation based on a target cap rate if you want to reverse-engineer price.

Assumptions and how to use this calculator

• Cap rate is based on NOI and purchase price only. Mortgage payments, interest, and loan fees are excluded by design.
• Vacancy and credit loss is applied to rent to estimate collected rent. Other income is treated as additional effective income.
• Basic monthly operating expenses are assumed to be ongoing, non-financing costs (repairs, small services, admin, etc.).
• Management fee is calculated as a percentage of collected rent, not gross scheduled rent.
• Maintenance reserve is a planning allowance based on gross rent. It is not a guaranteed expense, but it reduces the chance you overstate NOI.

Common questions

What is cap rate, in plain language?

Cap rate is the property’s estimated annual operating profit (NOI) divided by the price you pay for it. If a property produces 150,000 per year in NOI and costs 2,500,000, the cap rate is 6%. It tells you the income yield of the property as if you bought it with cash, before financing effects.

Why does this calculator exclude mortgage payments?

Because cap rate is meant to compare the property itself, not your specific loan structure. Financing can make cash-on-cash returns higher or lower, but cap rate stays focused on the asset’s operating performance. If you want a loan-focused metric, you would use a separate cash flow or bond repayment calculator.

Which expenses should be included in operating expenses?

Include recurring costs needed to keep the property producing income: taxes, insurance, HOA, owner-paid utilities, maintenance, minor repairs, landscaping, cleaning for common areas, and management. Exclude mortgage payments, renovations that materially improve the property (capital expenditures), and one-off purchase costs. If you are unsure, it is safer to include an expense than to pretend it does not exist.

What vacancy percentage should I use?

If you have no data, 5% is a common planning default for many stable rentals, but it can be too low in weak markets or for high-turnover tenant types. If the property already has a vacancy history, use that. If the deal relies on perfect occupancy to look good, it is fragile and the cap rate is overstated.

How can I improve accuracy if I only know rough numbers?

Start with realistic ranges: rent slightly below optimistic expectations, vacancy slightly above best case, and expenses slightly above what you assume. Then replace estimates with evidence: current lease schedule, comparable market rents, recent municipal tax bills, insurance quotes, HOA statements, and maintenance invoices. Cap rate is only as reliable as your NOI estimate.