Cap Rate Calculator
Net operating income ÷ price, with the full breakdown
Free to check. Based on the rent, not your tax returns.
Estimates, not a loan offer. DSCR lenders set their own minimums, rates and fees. We may earn a commission if you get a loan through this link. How we calculate · How we make money
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Numbers work? See what a lender would offer.The rate above is an example. A DSCR lender quote shows your real payment, which changes the cash flow and DSCR.
Free to check. Based on the rent, not your tax returns.
Check what a DSCR lender would offer
DSCR loans qualify the property on its rent, not your personal income. Lenders usually want a DSCR of 1.0 to 1.25, 20–25% down and a credit score around 660 or higher. Terms vary by lender, so compare a real quote with the numbers above.
Free to check. Based on the rent, not your tax returns.
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How to calculate cap rate
Capitalization rate, or cap rate, is a property's net operating income divided by its price:cap rate = NOI ÷ price. NOI is a year of rent and other income, minus vacancy, minus operating expenses such as property tax, insurance, repairs, CapEx reserves and management. It does not include the mortgage.
With the example numbers above, $2,700 rent produces $30,780 of income after 5% vacancy. Operating expenses are $10,802, which leaves an NOI of $19,978. Divided by a $300,000 price, that's a cap rate of about 6.66%.
What is a good cap rate?
There is no single good number. Cap rates are lower where buyers see less risk and expect prices to rise, and higher where rents are less certain or the property needs work. The useful comparison is with similar properties in the same area. A cap rate well above its neighbors usually means something is missing from the expenses, or the property carries risk the price reflects.
It also helps to compare cap rate with your mortgage rate. When the cap rate is below the interest rate, borrowing lowers your return instead of raising it, which investors call negative leverage. That's why this page shows cash flow and cash-on-cash return alongside cap rate.
Common cap rate mistakes
- Using gross rent instead of NOI. Cap rate is always after vacancy and operating expenses.
- Leaving out CapEx and management. Even self-managed properties should budget for both.
- Trusting a listing's projected numbers. Ask for actual rent rolls and expense history.
- Including the mortgage. Cap rate measures the property, not your financing.
Cap rate is one input to a decision, not the whole answer. Check the cash flow and DSCR above before you make an offer.
Frequently asked questions
What is a cap rate?
Capitalization rate is a property's net operating income divided by its price. It shows the return the property would produce as if you bought it with cash, which makes it easy to compare properties regardless of financing.
How do you calculate cap rate?
Cap rate = NOI ÷ price. NOI is annual rent and other income, minus vacancy, minus operating expenses, before any mortgage payment. A property with $20,000 of NOI and a $300,000 price has a cap rate of about 6.7%.
What is a good cap rate?
It depends on the market and property. Cap rates are lower where buyers see less risk and higher where rents are less certain. Compare with similar properties nearby, and compare with your mortgage rate: a cap rate below your rate means borrowing lowers your return.
Does cap rate include the mortgage?
No. Cap rate is calculated before financing. To include the mortgage, look at cash flow and cash-on-cash return, which the calculator shows alongside cap rate.
How is cap rate used in commercial real estate?
The same way, and also to estimate value: value = NOI ÷ cap rate. If similar buildings trade at a 7% cap rate, a building with $70,000 of NOI is worth about $1 million.