Cap rate calculator
Work out the capitalization rate of a property from its rent and costs, or what it is worth at a given cap rate.
I want to find the
Without mortgage payments or income tax
Cap rate
5,24 %
NOI / value
Net operating income
26.200
Per year
Gross yield
7,20 %
Rent / value
Years of income
19,1
Value / NOI
From rent to net operating income
- Gross rent36.000
- Vacancy−1.800
- Operating costs−8.000
- NOI26.200
Property value at other cap rates
The same income is worth less as the cap rate rises.
- 4 %655.000
- 5 %524.000
- 6 %436.667
- 7 %374.286
- 8 %327.500
- 9 %291.111
- 10 %262.000
A one-year snapshot, before financing and income tax. The values at other cap rates are arithmetic, not market data.
What is a cap rate?
The capitalization rate compares the yearly net income of a property with its value. It shows the return you would earn if you bought it in cash, before any mortgage. It is the quickest way to compare properties of different sizes.
Cap rate formula
Cap rate = Net operating income / Property value
Property value = Net operating income / Cap rate
Net operating income (NOI) is the rent you actually collect less running costs such as maintenance, insurance, management and property taxes. It leaves out mortgage payments, large renovations and income tax.
How to calculate a cap rate: an example
A flat costs 500.000 and rents for 36.000 a year. With 5 % vacancy you collect 34.200. Running costs of 8.000 leave a NOI of 26.200. Dividing 26.200 by 500.000 gives a cap rate of 5,24 %.
What is a good cap rate?
It depends on the market, the type of property and the risk. A lower cap rate means you pay more for each unit of income, usually for a safer asset or a stronger location. A higher one means more income for the price, usually with more risk. Compare it with recent sales of similar properties in the same area, not with a universal number.
Cap rate or gross yield?
Gross yield divides the full rent by the price, with no vacancy or costs. It is easy to calculate but flatters the return. Cap rate uses net income, so it is the fairer comparison between properties.
What a cap rate leaves out
It is a snapshot of one year. It ignores financing, future rent growth, renovation spending and the eventual sale price. For a full view of a project with those cash flows, calculate its IRR.