Enter gross rental income, operating expenses, and property value to calculate net operating income and cap rate.

How to Use the Cap Rate Calculator

Enter gross annual rental income, annual operating expenses, and the property's value or purchase price. The calculator recomputes net operating income and cap rate the moment any of the three changes.

Cap rate is the fastest gut-check in real estate investing: strip financing out entirely and ask what a property yields against its price. Two buyers can put down wildly different amounts of cash for the same building — one all-cash, one heavily mortgaged — and their cap rates still match, because the formula never looks at debt.

The Formula

Net operating income comes first:

NOI = Gross Annual Rental Income − Annual Operating Expenses

Then cap rate expresses that income as a percentage of value:

Cap Rate = NOI ÷ Property Value × 100

With the defaults loaded — $36,000 in rent, $12,000 in expenses, on a $350,000 property — NOI comes out to $24,000 and the cap rate lands just under 6.9%.

What Belongs in Operating Expenses

Property tax, insurance, maintenance, management fees, and the utilities a landlord covers all belong here. Mortgage principal and interest do not — NOI is deliberately calculated before any debt service, which is exactly what makes it comparable between an all-cash buyer and a heavily leveraged one. Capital expenditures like a new roof are usually kept out too, since those are one-time costs rather than the ongoing cost of running the property. Fold a mortgage payment into "expenses" by mistake and the resulting number stops meaning anything — it starts reflecting one buyer's financing instead of the property's own performance.

Reading the Result

There's no single "good" cap rate. A figure that looks thin for a single-family rental in a low-crime suburb can look generous for an office tower downtown, and norms shift by city and asset type — this tool won't tell you which market you're in. What the number is genuinely useful for is comparison: run the same formula against every property on your shortlist, using the same assumptions each time, and the one with the higher cap rate is generating more income per dollar of price. It says nothing about appreciation, tax treatment, or how easy the tenants are to deal with — those need their own math.