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Capitalization Rate (Cap Rate) Calculator

Calculate the Capitalization Rate (Cap Rate) of real estate investments.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Estimated Cap Rate (%) 7.00%
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Expert Tip

Cap Rate ignores mortgage leverage, presenting the unleveraged yield rate of an asset as if purchased fully in cash.

How this Calculator Works

This calculator computes the Capitalization Rate (Cap Rate) of an investment property. Cap rate measures the unlevered rate of return based on the Net Operating Income (NOI) relative to the property's asset value or purchase price.

Formula & Methodology

Cap Rate = (Net Operating Income / Property Value) * 100 - Net Operating Income (NOI) is gross rental revenues minus operating expenses (excluding mortgage interest).

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

An apartment building has a market value of $1,000,000 and generates $75,000 in net operating income annually. 1. Divide NOI by property value: $75,000 / $1,000,000 = 0.075. 2. Multiply by 100: 0.075 * 100 = 7.50%. Result: The capitalization rate (cap rate) of the building is 7.50%.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This real estate investment and mortgage calculator evaluates principal & interest monthly payments, capitalization rates (Cap Rate), Cash-on-Cash returns, property tax liabilities, Loan-to-Value (LTV) ratios, and refinance break-even schedules.

Variable Glossary

Input

Property & Loan Data

Purchase price ($), down payment %, mortgage interest APR %, loan term (years), gross rental income, or operating expenses.

Parameter

Real Estate Yield

Net Operating Income (NOI), Cap Rate %, Cash-on-Cash yield %, monthly debt service (P&I), and total closing costs.

How to Calculate Step-by-Step

1

Step 1

Enter target home purchase price, down payment percentage, and loan term duration.

2

Step 2

Input property taxes, homeowners insurance, HOA fees, vacancy rate %, and maintenance reserve estimates.

3

Step 3

Review full amortization schedule breakdown, cash-on-cash annual return, or debt-to-income (DTI) qualification score.

FAQ

What is Capitalization Rate (Cap Rate) in real estate?
Cap Rate = Net Operating Income (NOI) / Current Property Value. It measures an unleveraged property's natural rate of return independent of debt financing.
How does Cash-on-Cash Return differ from Cap Rate?
Cash-on-Cash Return calculates Annual Net Pre-Tax Cash Flow divided by Total Out-of-Pocket Cash Invested (down payment + closing costs + rehab). It incorporates debt leverage effects.
What DTI ratio limits do mortgage lenders enforce?
Most conventional lenders prefer a front-end housing DTI under 28% and a total back-end debt DTI under 36% to 43% (up to 50% for FHA/VA backed loans).