UseCalcPro
Home
MathFinanceHealthConstructionAutoPetsGardenCraftsFood & BrewingToolsSportsMarineEducationTravel
Blog
  1. Home
  2. Finance

Cap Rate Calculator

Calculate cap rate and property valuation from NOI

Cap Rate

7.50%

NOI

$30,000

Monthly NOI

$2,500

GRM

8.3

$
$
$
%

Capitalization Rate

7.50%

Net Operating Income

$30,000

Monthly NOI

$2,500

Gross Rent Multiplier

8.3

Expense Ratio

37.5%

Valuation from Target Cap Rate

At a 8% cap rate, this property would be worth:

$375,000

$25,000 below current price (may be overpriced)

Cap Rate at Different Prices

$360,0008.33%
$400,0007.5%
$440,0006.82%

Frequently Asked Questions

Q

How do you calculate cap rate?

Cap Rate = Net Operating Income (NOI) / Property Value x 100. For a property generating $30,000 NOI valued at $400,000: Cap Rate = $30,000 / $400,000 x 100 = 7.5%. Higher cap rates indicate higher potential returns but also higher risk.

  • NOI = Gross rental income minus operating expenses
  • Operating expenses include taxes, insurance, maintenance, management
  • NOI does NOT include mortgage payments or depreciation
  • Example: $48,000 rent - $18,000 expenses = $30,000 NOI
  • Cap rate of 7.5% means 7.5 cents annual return per dollar invested
Property ValueNOICap Rate
$300,000$30,00010.0%
$400,000$30,0007.5%
$500,000$30,0006.0%
Q

What is a good cap rate for rental property?

Good cap rates range from 4-10% depending on market and property type. Class A properties in prime locations: 4-6%. Class B suburban: 6-8%. Class C or rural: 8-12%. Higher cap rates signal higher risk and lower-quality tenants or locations.

  • Major cities (NYC, SF): 3-5% cap rates common
  • Secondary markets (Midwest, Southeast): 6-9% typical
  • Multifamily: generally 5-8% cap rates
  • Commercial: 6-10% depending on tenant quality
  • A "good" cap rate depends on your risk tolerance and market
Property ClassTypical Cap RateRisk LevelLocation
Class A4-6%LowPrime urban
Class B6-8%MediumSuburban
Class C8-12%HigherRural/secondary
Q

What is the difference between cap rate and ROI?

Cap rate measures unlevered return (no financing considered) based on property value. ROI measures total return on your actual cash invested, including leverage. A property with 7% cap rate could produce 12%+ ROI with mortgage leverage.

  • Cap rate ignores financing - compares properties on equal footing
  • ROI includes your specific down payment and loan terms
  • Same property can have very different ROI depending on leverage
  • Use cap rate for property comparison, ROI for investment decisions
MetricFormulaIncludes Financing?Best For
Cap RateNOI / Property ValueNoComparing properties
Cash-on-CashCash Flow / Cash InvestedYesMeasuring leverage
ROITotal Return / Total InvestmentYesOverall performance
Q

How do you calculate property value from cap rate?

Property Value = NOI / Cap Rate. If a property produces $36,000 NOI and the market cap rate is 8%: Value = $36,000 / 0.08 = $450,000. This is how appraisers and investors value income-producing properties.

  • Formula: Value = NOI / (Cap Rate / 100)
  • Lower cap rate = higher property value
  • Higher NOI = higher property value
  • Example: $30,000 NOI at 6% cap = $500,000 value
  • Example: $30,000 NOI at 10% cap = $300,000 value
Q

What expenses are included in NOI?

NOI includes all operating expenses: property taxes, insurance, maintenance, property management fees, utilities paid by owner, and vacancy allowance. NOI excludes mortgage payments, capital expenditures, income taxes, and depreciation.

  • Included: Property taxes (typically 1-2% of value annually)
  • Included: Insurance ($1,000-$3,000/year for single-family)
  • Included: Maintenance and repairs (5-10% of gross rent)
  • Included: Property management (8-12% of collected rent)
  • Excluded: Mortgage/debt service, capex, income tax, depreciation

Example Calculations

1Single-Family Rental with $48,000 Annual Income

Inputs

Annual Gross Income$48,000
Annual Operating Expenses$18,000
Property Value$400,000
Target Cap Rate8%

Result

Cap Rate7.50%
NOI$30,000
Monthly NOI$2,500
Valuation at 8% Cap$375,000

NOI = $48,000 - $18,000 = $30,000. Cap Rate = $30,000 / $400,000 x 100 = 7.50%. At an 8% target cap rate, the property would be valued at $30,000 / 0.08 = $375,000, which is $25,000 below the asking price.

2Duplex with $72,000 Annual Income

Inputs

Annual Gross Income$72,000
Annual Operating Expenses$28,000
Property Value$550,000
Target Cap Rate7%

Result

Cap Rate8.00%
NOI$44,000
Monthly NOI$3,667
Valuation at 7% Cap$628,571

NOI = $72,000 - $28,000 = $44,000. Cap Rate = $44,000 / $550,000 x 100 = 8.00%. At a 7% target cap rate, the property would be valued at $44,000 / 0.07 = $628,571, suggesting it may be underpriced by $78,571.

Formulas Used

Capitalization Rate

Cap Rate = (NOI / Property Value) x 100

Measures the rate of return on a real estate investment based on the net operating income the property generates.

Where:

Cap Rate= Annual return percentage on property value
NOI= Net Operating Income (gross income minus operating expenses)
Property Value= Current market value or purchase price

Property Valuation from Cap Rate

Property Value = NOI / (Target Cap Rate / 100)

Estimates the fair market value of an income property based on its NOI and the prevailing market cap rate.

Where:

Property Value= Estimated fair market value
NOI= Annual net operating income
Target Cap Rate= Market or desired cap rate percentage

Net Operating Income

NOI = Gross Rental Income - Operating Expenses

The income remaining after all operating costs, before debt service. The foundation of cap rate calculations.

Where:

NOI= Net Operating Income
Gross Rental Income= Total annual rent collected
Operating Expenses= Taxes, insurance, maintenance, management, vacancy

Understanding Cap Rate for Real Estate Investment

The capitalization rate (cap rate) is the most widely used metric for comparing real estate investments. It measures the potential return on a property independent of financing, making it ideal for apples-to-apples property comparison.

Our calculator computes cap rate from your net operating income and property value, and also estimates property valuation from a target cap rate. This reverse calculation is how professional investors and appraisers determine fair market value.

Remember that cap rate is just one metric. Consider location, tenant quality, appreciation potential, and your financing terms before making investment decisions.

Related Calculators

Cash-on-Cash Return Calculator

Calculate leveraged rental property return

Rental Yield Calculator

Calculate gross and net rental yield

House Flip Calculator

Calculate fix-and-flip profit and ROI

Investment Property Tax Calculator

Calculate investment property tax benefits including 27.5-year depreciation and mortgage interest deductions. Find your after-tax rental income and returns.

Property Tax Calculator

Enter your home value and state to estimate annual and monthly property taxes. Compares effective rates across all 50 states with assessment adjustments.

Real Estate Appreciation Calculator

Project your property's future value using compound appreciation rates. Compare growth scenarios with inflation adjustment and see your equity build over time.

Related Resources

Mortgage Calculator: Complete Guide to Calculating Your Home Loan

Read our guide

Compound Interest Explained: How Your Money Grows Over Time

Read our guide

Cash-on-Cash Return Calculator

Calculate leveraged return on rental property

Rental Yield Calculator

Compare gross and net rental yield

ROI Calculator

Calculate return on any investment

Mortgage Calculator

Calculate monthly mortgage payment

Explore More Finance Calculators

Real estate investment, mortgage, and financial planning tools

View All Finance Calculators

Last Updated: Mar 25, 2026

This calculator is provided for informational and educational purposes only. Results are estimates and should not be considered professional financial, medical, legal, or other advice. Always consult a qualified professional before making important decisions. UseCalcPro is not responsible for any actions taken based on calculator results.

UseCalcPro
FinanceHealthMath

© 2026 UseCalcPro