Cap Rate Calculator
A rental property's cap rate, net operating income, gross and net rental yield and operating expense ratio, or the value a target cap rate implies.
Result…
How it's calculated
Gross rent = rent × periods a year Effective gross income (EGI) = gross rent − vacancy loss + other income NOI = EGI − operating costs Cap rate = NOI ÷ value Gross yield = gross rent ÷ price Net yield = NOI ÷ (price + purchase costs) Operating expense ratio = operating costs ÷ EGI Value = NOI ÷ target cap rate
The capitalisation (cap) rate is a property's net operating income for a year divided by its price or market value: the return it would give a buyer who paid cash, before the mortgage and income tax. The gross rental yield uses the full rent instead, so it is quicker but leaves out vacancy and every cost. Net operating income is the rent you actually collect, plus other income, minus the costs of running the property; the operating expense ratio is the share of income those costs eat. Turned around, a target cap rate gives the value at which a property would earn it, which is how income properties are often valued. Investors and lenders in different countries draw the line between operating and capital costs differently, so check what is included in any figure you compare against. To add a mortgage and see the cash flow, use the rental property calculator.
Your numbers, step by step
About the Cap Rate calculator
This cap rate calculator works out the capitalisation rate of a rental property: its net operating income for a year divided by its price or value. Enter the rent, any other income, an allowance for vacancy and bad debt, and the yearly operating costs, and it shows the net operating income (NOI), the cap rate, the gross and net rental yield and the operating expense ratio. Switch to “Value at a cap rate” to turn it around and see what a property is worth at the cap rate buyers expect for similar homes or buildings. Mortgage payments are left out on purpose: the cap rate is the return as if you paid cash, which makes properties bought in different ways comparable. Every step is shown with your numbers. To add a loan and see the monthly cash flow, use the rental property calculator.
How to use it
- Choose “Cap rate and yield” to rate a property at its price, or “Value at a cap rate” to value it from a target rate.
- Enter the “Rent” and whether it is per month or per year, plus any “Other income per year”.
- Set “Vacancy and bad debt” to the share of rent you expect to lose, and enter the “Operating costs per year” without mortgage payments.
- Optionally add “Purchase costs (for net yield)”, then read the cap rate, NOI and yields.
Worked example
A property priced at 320,000 lets for 2,100 a month and earns 600 a year from parking. Gross rent is 25,200 a year; a 5% vacancy allowance takes 1,260, leaving effective income of 24,540. Operating costs of 7,800 leave an NOI of 16,740, so the cap rate is 5.23%. The gross yield is 7.88%, the operating expense ratio is 31.8%, and with 12,000 of purchase costs the net yield is 5.04%. At a 6.5% target cap rate the same income values the property at 257,538.46.
Updated
Questions people ask
How do I calculate the cap rate of a rental property?
Take the rent you expect to collect in a year, add other income, subtract operating costs such as tax, insurance, repairs and management, and divide that net operating income by the price or value. Mortgage payments are not included.
What is the difference between gross yield and cap rate?
Gross yield divides the full yearly rent by the price and ignores vacancy and costs. The cap rate uses net operating income, so it is lower and closer to what the property really earns.
What is a good cap rate?
There is no single figure: cap rates depend on the area, the type of property, its condition and interest rates at the time. Compare with the rates from recent sales of similar properties near it.
Should the mortgage go into operating costs?
No. Leaving financing out is what makes the cap rate comparable between a cash buyer and someone with a loan. Put the mortgage in the rental property calculator or check lender cover with the DSCR calculator.
How reliable is a value worked out from a cap rate?
It is only as good as the cap rate and the cost figures you enter. Valuers use rates from local sales and adjust for the building, so for a purchase or a loan rely on a professional valuation.