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Cap rate calculator
Put your value, rent, vacancy and expenses in: $350,000 at $3,000 a month is $25,200.00 of NOI a year and a 7.20% cap rate. The mortgage is not in the calculation — that is the point.
★ MONEY · RENTAL PROPERTY · CAP RATE
Cap Rate Calculator: Work Out a Rental Property's Yield
On the defaults — a $350,000 property renting for $3,000 a month with 5.00% vacancy and $9,000 of expenses — the NOI is $25,200.00 a year and the cap rate is 7.20%. This one is the CAP-RATE tool — the unlevered property-level return, NOI divided by value, no mortgage and no cash invested — the rental-property-roi-calculator page is the RENTAL-PROPERTY-ROI tool — the financed investment return, cash flow after the mortgage and cash-on-cash return — not the cap rate alone; the mortgage-payment-calculator page is the MORTGAGE-PAYMENT tool — the monthly payment on a loan — not a return at all.
What does a 7.20% cap rate mean?
It means that the property earns $25,200.00 a year for every $350,000 of value — 7.20 of the value, every year, before any mortgage. A $350,000 property renting for $3,000 a month, 5% empty, with $9,000 of expenses, keeps $25,200.00 a year after the bills: that is the NOI, and the NOI divided by the value is the cap rate. The cap rate is the return on the property itself — the building and the rent — not the return on the money you put in. Two buyers of the same property get the same cap rate whatever they borrow, because the mortgage is not in the calculation at all. That is what makes the cap rate the one number every rental listing can be compared on: the price, the rent and the costs, and nothing else.
Three things to check before you trust the number
The cap rate ignores financing — on purpose. A property with a 7.20% cap rate can still lose money month to month if the mortgage payment is bigger than the monthly NOI of $2,100.00. The cap rate answers "is this property priced fairly for its income"; the mortgage answers "can I afford to carry it". The rental-property-roi-calculator page answers the second question — down payment, cash invested, cash flow after the mortgage and cash-on-cash return — and its lede lists a 6.96% cap rate as one of many outputs on a financed deal. This page answers only the first, and it does it without a loan in sight.
Vacancy and expenses move the NOI directly. Every $1,000.00 of yearly expenses is 0.29 of cap rate on a $350,000 property: at $12,000.00 of expenses instead of $9,000.00 the NOI falls to $22,200.00 and the cap rate to 6.34%, and at $6,000.00 it rises to $28,200.00 and 8.06%. Vacancy does the same: 10% empty instead of 5% takes the NOI to $23,400.00 and the cap rate to 6.69%, and 0% takes them to $27,000.00 and 7.71%. A seller who quotes a cap rate on full occupancy and no expenses is quoting a fantasy — put your own vacancy and expenses in and watch the rate fall.
The value is the denominator, so a low cap rate can mean an expensive property, not a bad one. The same $25,200.00 NOI is a 10.08% cap rate on a $250,000 property and a 6.30% cap rate on a $400,000 one — the rent never changed, only the price. A low cap rate in a strong area usually means the buyer is paying for safety and growth, not that the rent is weak; a high cap rate in a weak area usually means the buyer is being paid to take the risk. Compare cap rates only between similar properties in similar places, and always ask what the rent and the expenses behind them are.
Worked example
On the defaults: a $350,000 property, $3,000 a month rent, 5% vacancy, $9,000 of yearly expenses.
- The gross rent: $3,000 × 12 is $36,000.00.
- The effective gross: $36,000.00 × (1 − 0.05) is $34,200.00 — 5% vacancy costs $1,800.00 a year.
- The NOI: $34,200.00 − $9,000.00 is $25,200.00.
- The monthly NOI: $25,200.00 ÷ 12 is $2,100.00.
- The cap rate: $25,200.00 ÷ $350,000 × 100 is 7.20%.
And the other way: a $315,000.00 value gives an 8% cap rate at this NOI, a rent of $3,245.62 a month gives 8% at this value, and the most the expenses can be at 8% is $6,200.00 a year.
Every branch, checked
- $250,000 value instead of $350,000: $250,000 value instead of $350,000: NOI $25,200.00 a year ($2,100.00 a month) on a $250,000 value — cap rate 10.08%.
- $400,000 value instead of $350,000: $400,000 value instead of $350,000: NOI $25,200.00 a year ($2,100.00 a month) on a $400,000 value — cap rate 6.30%.
- $2,500 a month rent instead of $3,000: $2,500 a month rent instead of $3,000: NOI $19,500.00 a year ($1,625.00 a month) on a $350,000 value — cap rate 5.57%.
- $3,500 a month rent instead of $3,000: $3,500 a month rent instead of $3,000: NOI $30,900.00 a year ($2,575.00 a month) on a $350,000 value — cap rate 8.83%.
- 0% vacancy instead of 5%: 0% vacancy instead of 5%: NOI $27,000.00 a year ($2,250.00 a month) on a $350,000 value — cap rate 7.71%.
- 10% vacancy instead of 5%: 10% vacancy instead of 5%: NOI $23,400.00 a year ($1,950.00 a month) on a $350,000 value — cap rate 6.69%.
- $6,000 expenses instead of $9,000: $6,000 expenses instead of $9,000: NOI $28,200.00 a year ($2,350.00 a month) on a $350,000 value — cap rate 8.06%.
- $12,000 expenses instead of $9,000: $12,000 expenses instead of $9,000: NOI $22,200.00 a year ($1,850.00 a month) on a $350,000 value — cap rate 6.34%.
The reverses, worked backwards
- Value for an 8% target cap rate: $315,000.00 — at $315,000.00 the figures are NOI $25,200.00 a year ($2,100.00 a month) on a $315,000 value — cap rate 8.00%.; at the lower neighbor the figures are NOI $25,200.00 a year ($2,100.00 a month) on a $314,000 value — cap rate 8.03%.; at the upper neighbor the figures are NOI $25,200.00 a year ($2,100.00 a month) on a $316,000 value — cap rate 7.97%. — verdict: STEP.
- Rent needed for an 8% target cap rate: $3,245.62 a month — at $3,245.62 a month the figures are NOI $28,000.07 a year ($2,333.34 a month) on a $350,000 value — cap rate 8.00%.; at the lower neighbor the figures are NOI $27,988.67 a year ($2,332.39 a month) on a $350,000 value — cap rate 8.00%.; at the upper neighbor the figures are NOI $28,011.47 a year ($2,334.29 a month) on a $350,000 value — cap rate 8.00%. — verdict: STEP.
- Most expenses allowed at an 8% cap rate: $6,200.00 a year — at $6,200.00 a year the figures are NOI $28,000.00 a year ($2,333.33 a month) on a $350,000 value — cap rate 8.00%.; at the lower neighbor the figures are NOI $28,001.00 a year ($2,333.42 a month) on a $350,000 value — cap rate 8.00%.; at the upper neighbor the figures are NOI $27,999.00 a year ($2,333.25 a month) on a $350,000 value — cap rate 8.00%. — verdict: STEP.
What the defaults assume
The defaults are a $350,000 property renting for $3,000 a month with 5% vacancy and $9,000 of yearly operating expenses. The NOI is the effective gross rent minus operating expenses — tax, insurance, maintenance, management and utilities the landlord pays — and it does not deduct the mortgage payment, income tax, or money set aside for big repairs like a roof, which are real costs that sit outside the cap rate. The vacancy is an average over the year, not a promise: a property empty for a month between tenants and full the rest of the year is about 8% vacancy, not 0%. The value is the market value, not the price paid — use the price you would pay if you are buying, and the value today if you already own it. The value reverse is checked at $1,000 either side, because a $1 change in a $315,000 value moves the cap rate by less than 0.01 points and shows nothing. The rent reverse is the smallest whole-cent rent that reaches 8%: $3,245.61 a month leaves an NOI of $27,999.95, one cent short of the $28,000 an 8% cap rate needs.
These notes repeat in every explainer section because this page is built to be read start to finish: the cap rate ignores financing — on purpose; vacancy and expenses move the NOI directly; and the value is the denominator, so a low cap rate can mean an expensive property, not a bad one.
Output · formula · meaning
| Output | Formula | What it means |
|---|---|---|
| Net operating income | gross rent × (1 − vacancy) − expenses | $25,200.00 — $36,000.00 × 0.95 − $9,000.00. |
| Monthly NOI | NOI ÷ 12 | $2,100.00 — $25,200.00 ÷ 12. |
| Cap rate | NOI ÷ value × 100 | 7.20% — $25,200.00 ÷ $350,000 × 100. |
| Effective gross a year | gross rent × (1 − vacancy) | $34,200.00 — $36,000.00 × 0.95. |
| Reverse: Value for an 8% target cap rate | step | $315,000.00: NOI $25,200.00 a year ($2,100.00 a month) on a $315,000 value — cap rate 8.00%. |
| Reverse: Rent needed for an 8% target cap rate | step | $3,245.62 a month: NOI $28,000.07 a year ($2,333.34 a month) on a $350,000 value — cap rate 8.00%. |
| Reverse: Most expenses allowed at an 8% cap rate | step | $6,200.00 a year: NOI $28,000.00 a year ($2,333.33 a month) on a $350,000 value — cap rate 8.00%. |
| $250,000 value instead of $350,000 | same model | NOI $25,200.00 a year ($2,100.00 a month) on a $250,000 value — cap rate 10.08%. |
| $400,000 value instead of $350,000 | same model | NOI $25,200.00 a year ($2,100.00 a month) on a $400,000 value — cap rate 6.30%. |
| $2,500 a month rent instead of $3,000 | same model | NOI $19,500.00 a year ($1,625.00 a month) on a $350,000 value — cap rate 5.57%. |
| $3,500 a month rent instead of $3,000 | same model | NOI $30,900.00 a year ($2,575.00 a month) on a $350,000 value — cap rate 8.83%. |
| 0% vacancy instead of 5% | same model | NOI $27,000.00 a year ($2,250.00 a month) on a $350,000 value — cap rate 7.71%. |
| 10% vacancy instead of 5% | same model | NOI $23,400.00 a year ($1,950.00 a month) on a $350,000 value — cap rate 6.69%. |
| $6,000 expenses instead of $9,000 | same model | NOI $28,200.00 a year ($2,350.00 a month) on a $350,000 value — cap rate 8.06%. |
| $12,000 expenses instead of $9,000 | same model | NOI $22,200.00 a year ($1,850.00 a month) on a $350,000 value — cap rate 6.34%. |
| $0 property value | same model | NOI $25,200.00 a year ($2,100.00 a month) on a $0 value — the cap rate is undefined, because a cap rate divides the NOI by the value. |
| $0 monthly rent | same model | NOI −$9,000.00 a year (−$750.00 a month) on a $350,000 value — cap rate −2.57%. |
| 100% vacancy | same model | NOI −$9,000.00 a year (−$750.00 a month) on a $350,000 value — cap rate −2.57%. |
| $0 operating expenses | same model | NOI $34,200.00 a year ($2,850.00 a month) on a $350,000 value — cap rate 9.77%. |
Who uses this
- A rental investor comparing listings — a $350,000 property at 7.20% against a $250,000 one at 10.08%: the cap rate puts two different prices and rents on one scale.
- A buyer checking an asking price — at a $25,200.00 NOI, an 8% cap rate means the property is worth about $315,000.00: the reverses say what the price should be before the offer goes in.
- A landlord setting the rent — $3,245.62 a month is the rent that lifts this property to 8%: the reverses say exactly what the rent has to be.
- A student learning NOI — one worked example from gross rent to vacancy to expenses to NOI to cap rate, and the branches that show how the value, the rent, the vacancy and the expenses each move the rate.
Accuracy & limitations
Figures are the model's own totals on the numbers you type, computed from unrounded values: the NOI is the gross rent times one minus the vacancy rate, minus the expenses, and the cap rate is the NOI divided by the value times 100. The displayed figures are rounded to 2dp. The value reverse is checked at $1,000 either side, because a $1 change moves the cap rate by less than 0.01 points. The rent reverse is the smallest whole-cent rent that reaches 8%. The cap rate is undefined at a $0 value — the page says so instead of showing a number — and a negative NOI gives a negative cap rate, which the page shows as it is. The model does not count the mortgage, income tax, or capital reserves, and the vacancy rate is an average, not a guarantee. This page is a calculation tool, not financial advice.
Cite this calculator
A $350,000 property renting for $3,000 a month with 5.00% vacancy and $9,000 of yearly expenses has an NOI of $25,200.00 a year and a cap rate of 7.20%. Source: Bright Side Kit, brightoolbox.com.
Frequently asked questions
What is a good cap rate?
There is no single good cap rate — 5% to 10% is the usual range for a residential rental. A higher cap rate means the property is cheaper next to its income, not necessarily better: it can also mean a weaker area or a riskier tenant.
How do you calculate cap rate?
Divide the NOI by the property value and multiply by 100. A $350,000 property with a $25,200 NOI has a 7.20% cap rate: $25,200 ÷ $350,000 × 100.
What is NOI?
Net operating income: the rent left after vacancy and operating expenses, before any mortgage. Here $3,000 a month is $36,000 a year, 5% vacancy leaves $34,200, and $9,000 of expenses leaves $25,200.
Does the cap rate include the mortgage?
No — that is the point. The cap rate is the return on the property itself, before financing. Two buyers of the same property get the same cap rate whatever they borrow; the mortgage shows up in cash flow and cash-on-cash return instead.
What property value gives an 8% cap rate?
About $315,000 at a $25,200 NOI — $25,200 ÷ 0.08. A cheaper price at the same rent is a higher cap rate.
What rent do I need for an 8% cap rate?
$3,245.62 a month on a $350,000 property with 5% vacancy and $9,000 of expenses. That is the smallest whole-cent rent that reaches 8% — $3,245.61 leaves the NOI one cent short.
What if the property is empty?
At $0 rent the NOI is −$9,000 a year and the cap rate is −2.57% — the property loses money before the mortgage. At 100% vacancy the figures are the same: the rent is gone and only the expenses are left.
Cap rate vs cash-on-cash return?
The cap rate divides NOI by the property value and ignores financing; cash-on-cash divides the cash flow after the mortgage by the cash invested. The rental-property-roi-calculator page works out both.