Cap Rate Calculator

Cap Rate = Annual NOI ÷ Property Value × 100

NOI is gross rent minus all operating expenses — vacancy allowance, maintenance, property management, taxes, and insurance. Importantly, it excludes mortgage payments, which is what makes cap rate useful for comparing properties regardless of how they're financed.

Cap rate measures how efficiently a property generates income relative to its price. A 7% cap rate means the property returns 7 cents of NOI for every dollar of value. It's a property metric — not an investor metric — so it doesn't change when you refinance or change your down payment.

Cap rate ignores financing; cash-on-cash return accounts for it. If you buy a 6% cap rate property with a 7% mortgage rate, you may be cash flow negative — the property's income doesn't cover the debt. That's why both metrics matter, and why refinancing (lowering the mortgage rate) can transform a negative cash flow property.