Cap Rate
Calculator

Cap rate is the unlevered yield on a property: net operating income divided by value. Because it excludes financing, two investors with different mortgages can look at the same building and agree on the number — which is exactly what makes it the standard comparison metric.

• NOI — gross rent, less vacancy, less every operating expense. Not the mortgage, not depreciation, not capital expenditure.
• Value, not equity — the denominator is the whole property price, never your deposit. Using the deposit gives cash-on-cash return, a different and larger number.
• Benchmarks — roughly 3-5% in tier-1 coastal metros, 5-7% in secondary markets, 7-10%+ in tertiary ones.

A high cap rate is not automatically a better deal

Cap rate and appreciation tend to trade off against each other. A 9% cap in a shrinking town and a 4% cap in a supply-constrained metro are not ranked by that number alone — the first pays you more now, the second is likelier to be worth more later, and the risk profiles differ. Cap rate also says nothing about condition or tenant quality: a building with deferred maintenance shows an attractive cap rate right up until the roof needs replacing, because capital expenditure sits outside NOI. Treat a cap rate well above its market band as a question to investigate rather than a bargain found.

Cap rate vs cash-on-cash vs GRM

Three numbers, three questions. Cap rate prices the asset, ignoring your loan. Cash-on-cash prices your position in it — annual cash flow over cash invested — and leverage can push it well above the cap rate, or below it when the property is negatively geared. Gross rent multiplier (price ÷ gross annual rent) is the quick screen: it needs no expense data, which makes it fast and also blind to the expense ratio that decides whether the deal works.

1. Enter the property value — the purchase price for a deal you are evaluating, or current market value for one you already own. The two diverge in appreciating markets and answer different questions.
2. Enter monthly rent at MARKET rates for comparable units, not the rent you hope to achieve.
3. Set a vacancy reserve: about 5% in strong rental markets, 8-10% in weaker or seasonal ones.
4. Add operating expenses — property tax, insurance, maintenance (budget 1-2% of value a year), management (8-12% of collected rent) and HOA dues.
5. Leave the mortgage out entirely. Cap rate is unlevered by definition, and including finance costs is the most common way the number gets computed wrong.
6. Read the cap rate against the benchmark band for the market type, and compare it with the gross rent multiplier shown beside it.