Cap rate calculator for rental properties
Enter your purchase price, rent, and operating expenses. We'll calculate net operating income and cap rate in real time, then tell you how the number reads against a normal stabilized rental.
What cap rate actually tells you
Capitalization rate is a first-look tool. It answers one question: if you paid all cash for this property, what unlevered yield would you earn in year one? Because it ignores financing, cap rate is the cleanest way to compare two assets side by side. Two rentals with wildly different mortgages produce different cash flow, but their cap rates reflect the underlying operating performance.
Cap rate has limits. It says nothing about appreciation, principal paydown, tax treatment, or how a specific loan structure changes the deal. It also assumes stabilized operations. A property in the middle of a value-add renovation will produce a misleading cap rate until the work is done and the rents are marked to market. Use cap rate to filter and compare. Use cash-on-cash and IRR to underwrite the deal you'll actually sign.
The most common mistake investors make is underloading expenses. Numbers that skip management, maintenance reserves, and realistic vacancy inflate NOI by 15 to 25 percent and hide the difference between a good deal and a marginal one. Load the expense side honestly. If the cap rate still clears your threshold, the deal will hold up in operation.