Quickly determine capitalization rates to compare investment opportunities side by side. Evaluate which property delivers the best return.
Enter property details and operating expenses
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Get Started Free →Net Operating Income divided by the property's current market value or purchase price.
Operating expenses exclude mortgage payments (P&I), depreciation, and capital expenditures.
Lower GRM = faster payback. Typically ranges from 4-12 depending on market.
The capitalization rate, or cap rate, measures how much income a rental property produces compared with its value. It is the property’s net operating income (NOI) divided by its purchase price or current market value, shown as a percentage. Because it leaves out the mortgage, cap rate lets you compare properties on equal terms, whether you pay cash or use a loan.
Cap rate = Net operating income ÷ Property value × 100
Example: a home rents for $1,800 a month, or $21,600 a year. Taxes, insurance, repairs, management, and vacancy come to $9,468 a year, so the NOI is $12,132. At a price of $200,000, the cap rate is 12,132 ÷ 200,000 = 6.07%.
There is no single right number. Lower cap rates are common in expensive, high-demand cities, where investors accept less income in exchange for stability and price growth. Higher cap rates are common in lower-cost markets and often come with more risk or more management work. Compare a property with similar rentals in the same area rather than with a national average.
No. Cap rate uses NOI before any loan payments. To see how your mortgage changes the picture, use the Rental Cash Flow Calculator, which includes debt service and cash-on-cash return.
Cap rate compares a property’s income with its value. ROI compares your return with the money you actually invested, including the down payment and closing costs. Try the Rental ROI Calculator.
Look at similar rentals nearby, or start with the Rent Estimate Tool and then run the numbers here.