A cap rate calculator measures a rental property’s yearly net operating income as a percentage of its price. $21,600 of NOI on a $350,000 property is a cap rate of 6.17%.
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How to use the cap rate calculator
- Enter the purchase price and down payment.
- Enter the mortgage rate and term in years.
- Enter monthly rent and monthly operating expenses.
- Read the cap rate, NOI, cash flow and returns.
How the cap rate calculator works
The cap rate calculator sizes up a rental property from its price, financing, rent and expenses. Its headline result is the capitalization rate:
- Net operating income (NOI) = (monthly rent − monthly expenses) × 12
- Cap rate = NOI ÷ purchase price × 100
It also shows the gross rent multiplier (price ÷ yearly rent), the monthly mortgage payment for the loan (price minus down payment), the monthly cash flow after that payment, and cash-on-cash return (yearly cash flow ÷ down payment). Expenses should cover taxes, insurance, repairs, management and other running costs, but not the mortgage.
Cap rate calculator worked example
A property costs $350,000 and rents for $2,200 a month, with $400 a month of operating costs. NOI is $1,800 × 12 = $21,600, so the cap rate calculator shows 21,600 ÷ 350,000 = 6.17%. The gross rent multiplier is 350,000 ÷ 26,400 = 13.26. With $70,000 down and a 30-year loan at 6.5%, the payment is $1,769.79, leaving cash flow of just $30.21 a month and a cash-on-cash return of 0.52%. At a price of $250,000 with $50,000 down, the same rent gives a cap rate of 8.64% and cash flow of $535.86.
| Price | Down | Cap rate | NOI | Cash flow | Cash-on-cash |
|---|---|---|---|---|---|
| $350,000 | $70,000 | 6.17% | $21,600 | $30.21 | 0.52% |
| $250,000 | $50,000 | 8.64% | $21,600 | $535.86 | 12.86% |
What cap rate tells you
Cap rate is the yearly return the property would give if you paid all cash, before income tax. Because it ignores financing, it lets you compare properties on equal terms. A higher cap rate means more income per dollar of price, but often comes with more risk, an older building or a weaker area. Typical cap rates vary by market, property type and interest rates, so compare with similar local properties rather than a fixed rule.
Cap rate versus cash flow
A decent cap rate can still produce thin cash flow once a mortgage is added, as the example shows. When mortgage rates are higher than the cap rate, borrowing reduces the return on your cash. Cash-on-cash return captures that effect. The cap rate calculator shows both, so you can see whether the deal works with your financing.
Estimating expenses
Under-estimating costs is the most common error. Include property tax, insurance, repairs and maintenance, capital reserves for roofs and appliances, property management, utilities you pay, HOA dues and an allowance for vacancy. This tool does not have a separate vacancy box, so build vacancy into the expense figure, or use the rental property calculator, which has one. IRS Publication 527 lists the rental expenses that can be deducted for tax purposes.
Limits
The model is a one-year snapshot. It does not include closing costs, rent growth, appreciation, principal paydown, tax or depreciation. The down payment must be between 0 and the price, and rent, expenses and the rate cannot be negative; other inputs are rejected with a message. The tool is labelled Real Estate Calculator (Cap Rate), and its main output is the cap rate.
Gross rent multiplier
GRM is a quick screening number: price divided by a year of gross rent. A lower GRM means the rent is high relative to price. It ignores expenses, so two buildings with the same GRM can have very different cap rates.
Tips
- Use actual rents from similar local units.
- Ask the seller for tax, insurance and utility bills.
- Run the cap rate calculator with a lower rent to test the downside.
- Compare cap rate with the mortgage rate before borrowing.
Estimates for education only, not financial advice. Your lender’s figures are final.
Related converters and calculators
Related calculators:
- Rental property calculator: cash flow with vacancy
- Mortgage calculator: payments
- ROI calculator: return on investment
- Down payment calculator: down payment
Short-term financing? See the bridge loan calculator and the hard money loan calculator.
Sources
IRS Publication 527: Residential rental property; CFPB: Buying a house.
Formula and method
Cap rate = NOI ÷ property price × 100, where NOI = (monthly rent − monthly operating expenses) × 12. GRM = price ÷ annual gross rent.
NOI is calculated before mortgage payments, so the cap rate describes the property itself. Cash flow and cash-on-cash return then add the effect of your loan.
Questions about this calculator
What is cap rate?
Yearly net operating income divided by property price.
Does cap rate include the mortgage?
No. It ignores financing.
What is a good cap rate?
It depends on the market and property type; compare local deals.
What is GRM?
Price divided by yearly gross rent.
Does it include vacancy?
Not separately; add it to expenses.
Check the assumptions and units before relying on a result. Financial, tax and health estimates do not replace advice for your individual circumstances.
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