Cap rate (capitalization rate) is the most common shorthand for comparing income properties. It tells you the yield a property produces before financing, which makes it the cleanest way to compare deals of different sizes.
Use the free RentScope calculator to compute cap rate alongside cash flow, DSCR and IRR — or read the worked example below to see how the math behaves.
Formula
Cap rate = Net operating income (NOI) ÷ Purchase price
NOI is effective gross income minus operating expenses. It excludes the mortgage on purpose, so cap rate measures the asset, not the loan.
How to calculate it
- Estimate market rent and subtract vacancy and credit loss.
- Subtract operating expenses: management, maintenance, taxes, insurance, HOA and owner-paid utilities.
- Divide the resulting NOI by the purchase price.
Worked example
Assume a $300,000 property renting for $2,400/month with typical expenses and a 6.75% loan. Running those numbers through the RentScope engine gives:
Open the free calculator with your own numbers →
FAQ
What is a good cap rate?
It depends on risk and market. Lower-risk, high-appreciation markets often trade at 3–5%; balanced markets 5–8%; higher-risk or lower-growth markets 8–12%. Compare against local comps.
Does cap rate include the mortgage?
No. Cap rate uses NOI, which excludes debt service. That is what makes it financing-neutral.
Why can a high cap rate be risky?
A high cap rate often reflects higher perceived risk: weak rent growth, high vacancy, older buildings, or declining areas.
More free calculators
DSCR Calculator · Cash-on-Cash Return Calculator · 1% Rule Calculator · BRRRR Method Calculator · Net Operating Income (NOI) Calculator · Gross Rent Multiplier (GRM) Calculator · Break-Even Occupancy Calculator · 50% Rule Calculator · House Hack Calculator · 1031 Exchange Calculator · Rental Property Depreciation Calculator · Seller Financing Calculator · Hard Money Loan Calculator