Work out NOI and cap rate for a rental property, or find the most you can pay at a target cap rate.
Results
Enter your numbers to see the results.
Income and operating expenses
Gross potential income (GPI)
Vacancy loss
Effective gross income (EGI)
Property tax
Insurance
Utilities you pay
HOA fees
Landscaping and snow removal
Repairs and maintenance
Capital-expenditure reserve
Property management
Other expenses
Operating expenses
Expense ratio
NOI
Cap rate
All-in cap rate
Maximum price at your target cap rate
NOI needed for a target cap rate at your price
Value at a target cap rate
Estimates only, not investment, tax or legal advice. A cap rate is a snapshot of income against price. It ignores your financing, taxes and future rent changes. Cap rates vary by market and property type, so compare them with local sales, not national averages.
The capitalization rate, or cap rate, tells you what a rental property earns each year compared with its price, before any loan. Enter the rent, vacancy and expenses and the tool builds the net operating income (NOI), then divides it by the price. It also works backward: give it an NOI and a cap rate, and it shows the value, or tell it your target and it shows the most you should pay. Already know the NOI? Switch to quick mode and skip the expense lines.
How to use it
Choose a mode: Full builds NOI from the details, Quick takes an NOI you already have, and Value turns an NOI and a cap rate into a price.
Enter the purchase price. Add closing and rehab costs if you want the all-in cap rate.
Enter the rent, and say whether it's monthly or annual. Add other income, like laundry or parking, as a yearly amount.
Set vacancy and credit loss. The default is 5%.
Enter your yearly operating expenses. Property management and maintenance can be a dollar amount or a percent of income.
Set your target cap rate to see the highest price that meets it.
The cap rate formula
Cap rate = NOI ÷ price.
NOI is your yearly income after vacancy and operating expenses, but before the mortgage:
NOI = effective gross income − operating expenses
A property that costs $500,000 and earns $38,000 of NOI has a cap rate of 38,000 ÷ 500,000 = 7.60%.
What counts as an operating expense: property taxes, insurance, utilities you pay, HOA fees, landscaping and snow removal, repairs and maintenance, a capital-expenditure reserve, property management, and similar costs of running the building.
What doesn't: mortgage principal and interest, depreciation and income taxes. Leaving them out is what keeps cap rates comparable between buyers who pay cash and those who borrow. Putting your mortgage in is the most common mistake.
How it works
Gross potential income (GPI) = rent × 12 (if monthly) + other income.
Vacancy loss = GPI × vacancy %. Effective gross income (EGI) = GPI − vacancy loss.
Percent-based expenses (like management) are a percent of EGI. They use the rounded EGI shown on screen, so you can check the math by hand.
Operating expenses = the sum of all the rounded expense lines.
Expense ratio = operating expenses ÷ EGI.
Value at a target cap rate = NOI ÷ target. This is the most you can pay and still hit the target, so the tool rounds it down to the cent.
NOI needed for a target cap rate at your price = price × target. This rounds up.
Worked examples
A duplex.
Price $425,000, rent $3,600 a month, other income $600 a year, 5% vacancy. Expenses: property tax $5,100, insurance $1,850, utilities $1,200 and a $2,000 capex reserve, plus management at 8% of EGI and maintenance at 5%.
Management: $3,328.80. Maintenance: $2,080.50. Operating expenses: $15,559.30 (an expense ratio of 37.39%).
NOI: $26,050.70. Cap rate: 26,050.70 ÷ 425,000 = 6.13%.
At a 6% target, the most you could pay is $434,178.33. A 6% cap at $425,000 would need an NOI of $25,500.00.
Quick mode.
An NOI of $38,000 on a $500,000 price is 7.60%. An NOI of $31,337 on $432,000 is 7.2539%, shown as 7.25%.
Value mode.
An NOI of $62,400 at a 6.75% cap rate is worth $924,444.44. An NOI of $50,000 at 7.5% is $666,666.666…, so the tool shows $666,666.66. It rounds down so you never pay a cent past your target.
A six-unit building.
Price $1,250,000, rent $1,450 per unit a month, six units, $3,600 a year in other income, 7% vacancy. Expenses: property tax $18,750, insurance $6,200, utilities $9,800, landscaping $2,400, capex reserve $6,000, management at 7% and maintenance at 6%. Closing and rehab add $45,000.
Operating expenses: $56,207.20, which is 55.96% of EGI. NOI: $44,232.80.
Cap rate: 3.54%. All-in cap rate with the $45,000: 3.42%.
At a 7% target, the price would have to be $631,897.14, or the NOI would have to be $87,500.00.
When the NOI is negative.
A $300,000 condo renting for $1,500 a month with 10% vacancy, $7,500 in tax, $2,400 insurance, $6,000 in HOA fees and 10% management. EGI is $16,200.00 but expenses are $17,520.00, so NOI is −$1,320.00 and the cap rate is −0.44%. The tool warns that expenses exceed income. When NOI is zero or negative, the tool hides the maximum price and the NOI-needed rows and says "NOI must be positive for this result." A property with no positive NOI has no income value at any cap rate.
FAQ
What is a cap rate?
It's NOI divided by price, expressed as a percent. It shows the yearly return of a property if you paid all cash. Higher cap rates mean more income for the price, and often more risk.
What is a good cap rate?
It depends on the market, the property type, the condition and the interest rates at the time. Compare with recent sales of similar properties near you, not a national number. This tool doesn't give a benchmark, because a made-up one would mislead.
How do I calculate NOI?
Start with potential rent and other income, subtract vacancy to get effective gross income, then subtract operating expenses. Don't subtract your mortgage payment, depreciation or income taxes.
How do I find value from a cap rate?
Divide NOI by the cap rate. A property with $62,400 of NOI at a 6.75% cap rate is worth $924,444.44. Use Value mode.
Does the cap rate include the mortgage?
No. It ignores financing completely. If you want to know the return on the cash you put in with a loan, that's a different measure (cash-on-cash).
What's the difference between cap rate and all-in cap rate?
The all-in cap rate adds your closing and rehab costs to the price. It shows the return on your total investment, which is lower if you're spending money to fix the place up.
Should I include a capital-expenditure reserve?
Many investors do, since roofs, appliances and flooring wear out. It's an estimate, not a cash cost every year. If a seller's numbers leave it out, ask what's been spent on repairs.
What vacancy rate should I use?
The default is 5%, but your market and property type may be different. Use the actual vacancy for your area or building if you know it.
Why is my cap rate so high or low?
A cap rate over 25% usually means rent is too high or expenses are too low. Check that your rent isn't annual while the toggle says monthly. The gross income line makes that mistake easy to spot. A very low cap rate can mean a high price, high expenses or a growth market.
Is a cap rate the same as ROI?
No. ROI includes how you finance the purchase and what you invested. Cap rate looks only at the property's income against its price.
