📊 Cap Rate
Capitalization rate for investment properties
About this calculator
Cap rate measures a rental property's annual return ignoring financing. Enter the property's price and its net operating income (rent minus taxes, insurance, maintenance, and vacancies — but not mortgage payments) and get the capitalization rate as a percentage.
Cap rate equals net operating income divided by property value, times 100. A $500,000 property netting $25,000 a year has a 5 percent cap rate. Because it excludes the mortgage, it lets you compare properties' underlying profitability regardless of how each buyer finances.
Tip: Higher cap rates usually signal higher risk or weaker markets, not better deals — an 8 percent cap in a declining town can be worse than a 4 percent cap in a growing city.