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Cap rate calculator
Enter the price, the annual rent, and the operating expenses. You'll get net operating income and the capitalization rate. Nothing here touches the mortgage — cap rate is the unlevered yield.
What you pay for the property.
All rent for a full year, before expenses.
Taxes, insurance, repairs, management — not the mortgage.
Cap rate
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Net operating income divided by price — the unlevered yield, with the mortgage left out on purpose.
What the cap rate actually tells you
The capitalization rate is the return a rental property would produce if you bought it with all cash. It strips out financing entirely, so two buildings can be compared on the merits of the real estate alone, not on how clever someone's loan was. That is exactly why investors reach for it first.
The formula is short: cap rate = net operating income ÷ purchase price. Net operating income, or NOI, is your annual gross rent minus annual operating expenses. Operating expenses are the ordinary cost of running the place — property taxes, insurance, repairs, management, utilities you cover, and a vacancy allowance. They do not include the mortgage. Leaving debt out is the whole point.
A worked example
Say a duplex is listed at $300,000. It brings in $30,000 of rent a year, and you expect $9,000 in operating expenses — taxes, insurance, the occasional repair, a little for vacancy. Subtract the expenses from the rent and you have your NOI. Divide that by the price and you have the cap rate.
Worked example
Gross rent $30,000
Operating exp − $9,000
NOI $21,000
Price $300,000
Cap rate $21,000 ÷ $300,000 = 7.0%
So this property has a 7.0 percent cap rate. If a comparable building down the street is priced at $350,000 with the same $21,000 of NOI, its cap rate falls to 6.0 percent — you'd be paying more for the same income, which the single number makes obvious at a glance.
What counts as a good number
There is no universal answer, because the cap rate is a price-to- income ratio and prices are local. In a lot of U.S. residential markets, stabilized small rentals trade somewhere between 5 and 8 percent. A higher cap rate generally means more yield up front — and usually more risk, more management, or a softer location. A lower one often signals a stronger, pricier market where buyers accept less current income because they expect appreciation.
The useful move is not to chase a magic number but to compare a property against others in the same market and against your own required return. Cap rate is best as a relative tool: this building versus that one, this year versus last.
Where the cap rate falls short
Because it ignores financing, the cap rate says nothing about your actual cash return after the mortgage — that's what cash-on- cash return measures. It also leans on the quality of your expense estimate. Forget the vacancy allowance or lowball repairs and the NOI is inflated, which makes the cap rate look better than the building really is. Garbage in, optimistic cap rate out.
It also quietly assumes a stabilized, fully-rented year. A property mid-turnaround, or one with a big one-time repair, will read worse than it will perform once it settles. That is why a normalized, full-year view — stabilized rents, a realistic vacancy factor, annualized costs — is the honest way to underwrite, and it's how resty.ai figures the number on your dashboard.
You don't have to run this by hand.
resty.ai computes cap rate and NOI automatically across your whole portfolio, on real transactions, and keeps it current as rents and expenses change.