Cap Rate Calculator
The capitalization rate is the return a property would throw off if you owned it outright. Net operating income divided by value, with the mortgage left out of the picture entirely.
Cap rate
5.82%
- Net operating income
- 29,100
- Effective gross income
- 41,100
- Expenses as a share of income
- 29.20%
- Gross yield
- 8.40%
- Years to recover the value
- 17.1821
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
The formula this calculator uses
cap rate = net operating income / property value
- NOI
- Net operating income, income minus running costs but before debt
- value
- The current value or purchase price of the property
- vacancy
- The share of rent lost to empty periods and non payment
- opex
- Taxes, insurance, management, repairs and utilities
How to check the result by hand
- 1
Annualise the rent
3500 a month is 42000 a year. This is the gross scheduled rent before anything is taken off.
- 2
Apply vacancy and add other income
At five percent vacancy the collected rent is 39900, and 1200 of parking and laundry income takes the effective gross income to 41100.
- 3
Subtract the operating expenses
Taxes, insurance, management and repairs come to 12000, leaving 29100 of net operating income. Loan payments are not part of this step.
- 4
Divide by the value
29100 over 500000 is 5.82 percent. The same property shows a gross yield of 8.4 percent and hands back its own value in 17.1821 years.
For worked examples, common mistakes and the limits of this formula, read the full How To Calculate Cap Rate page.