Cap rate (capitalization rate) is the ratio of a property's Net Operating Income to its current market value, expressed as a percentage. A $100,000 NOI on a $1,000,000 property yields a 10% cap rate.

What is a good cap rate for real estate?

It depends on the market and asset class. Single-family rentals in primary cities often trade at 4–6%, while multifamily in secondary markets may reach 6–9%. Higher cap rates imply higher yield but often higher risk or weaker appreciation prospects.

What does Net Operating Income (NOI) include?

NOI is gross rental income minus all operating expenses (property management, insurance, taxes, maintenance, and vacancy allowance) but BEFORE mortgage payments, depreciation, and income taxes. Financing costs are excluded because cap rate measures property performance independent of how it is financed.

Does cap rate account for mortgage or financing?

No. Cap rate is an unlevered metric — it ignores how the property is financed. To evaluate returns with a mortgage, use cash-on-cash return or debt-service coverage ratio (DSCR) instead.

How do I use cap rate to estimate property value?

Divide the NOI by the prevailing market cap rate for comparable properties: Value = NOI ÷ Cap Rate. If similar buildings sell at a 6% cap and your NOI is $60,000, the implied value is $1,000,000.

What is the relationship between cap rate and property value?

They move inversely. When cap rates compress (buyers accept lower yields), property values rise. When cap rates expand (buyers demand higher yields), values fall. This is why rising interest rates typically push property values down.

Cap Rate Calculator

Enter any two of: Net Operating Income, Property Value, or Cap Rate — and instantly solve for the third.