What This Calculator Does
Divides net operating income by property price to produce the capitalization rate, a financing-independent metric for comparing investment properties.
Who Is This For
Investors comparing several properties at once and buyers underwriting a commercial or multifamily acquisition.
How It Works
Enter the property price, total annual rental income, and annual operating expenses to see the resulting net operating income and cap rate.
Frequently Asked Questions
What is considered a strong cap rate?
What is considered strong depends heavily on location, asset type, and risk; a higher cap rate generally signals higher income relative to price but can also reflect higher risk.
What is net operating income?
Net operating income is gross rental income minus operating expenses such as taxes, insurance, maintenance, and management fees, before mortgage payments or depreciation.
Why compare properties using cap rate?
Because cap rate excludes financing, it lets you compare the underlying income performance of different properties on equal footing, regardless of how each buyer plans to finance the purchase.
How are cap rate and price related?
For a given income stream, a higher price produces a lower cap rate and a lower price produces a higher cap rate; the relationship helps explain why premium properties often carry lower cap rates.