Cap Rate Calculator
Calculate cap rate, property value, or net operating income
Cap rate is net operating income divided by property value. Net operating income is rent minus operating costs. The mortgage payment is not an operating cost, so it does not belong in this ratio. For a loan payment on the same property, use the mortgage calculator.
Calculator Inputs
Taxes, insurance, repairs, and management. Not the mortgage.
Results
Enter values above to see your results
A ratio from the numbers you enter. It is not an appraisal.
How to use this calculator
- Choose whether you want the cap rate, the property value, or the net operating income.
- For the rate, enter annual rent, annual operating costs, and the property value.
- For value or income, enter the cap rate as a percent along with the other known figure.
How the calculation works
Net operating income is annual rent minus annual operating costs. Cap rate is that income divided by the property value. A $25,000 income on a $400,000 property is 6.25%.
Rearranged, value is income divided by the cap rate, and income is value times the cap rate. Operating costs are taxes, insurance, repairs, vacancies you choose to subtract, and management. Principal and interest are financing, not operations.
What stays out
A mortgage changes the cash you keep. It does not change the cap rate of the building. Two buyers with different loans still see the same cap rate if the rent, the costs, and the price are the same.
Worked example
$40,000 rent, $15,000 operating costs, $400,000 value
$40,000 − $15,000= $25,000$25,000 ÷ $400,000= 6.25%Tips & Best Practices
- •Use a full year of rent and costs, not one month, unless you multiply the month by 12 first.
- •A higher cap rate means more income per dollar of price. It is not, by itself, a measure of risk.
Frequently Asked Questions
How do you calculate cap rate?
Divide net operating income by the property value. $25,000 of income on a $400,000 property is a 6.25% cap rate.
What is net operating income?
Annual rent minus operating costs. Mortgage payments are not operating costs.
How do you find property value from a cap rate?
Divide the net operating income by the cap rate as a decimal. At 6.25%, $25,000 of income implies a value of $400,000.
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