Cap Rate Calculator
Cap rate = net operating income ÷ purchase price. Edits recompute in real time — no “Calculate” button, no lender ads stapled to the bottom.
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The clearest single number for a rental property.
The capitalization rate — or cap rate — is what an income-producing property would yield if you paid all cash. It strips out the noise of financing, leverage, and tax tricks, and gives you one comparable number across markets and property types.
You compute it by taking the net operating income (NOI) — gross rent minus realistic operating expenses, but not mortgage payments — and dividing by the purchase price. A 6% cap rate means the property generates 6¢ of operating profit per dollar of price, every year, before financing.
Lenders care about cap rate because it relates directly to DSCR. Long-time landlords care because it makes Memphis triplex vs. Boston duplex an apples-to-apples comparison. New investors should care because it's the fastest filter when scanning 30 listings on Zillow — anything below your target cap rate gets cut before you waste a Saturday driving to it.
- Purchase price: $450,000
- Annual rent: $36,000 ($3,000/mo)
- Operating expenses at 30%: $10,800
- NOI: $36,000 − $10,800 = $25,200
- Cap Rate: $25,200 ÷ $450,000 = 5.6%
- 01Enter the asking price (or your target offer price).
- 02Enter annual rent — if listed monthly, multiply by 12. If unrented, use Zillow Rent Estimate or your local PM rule-of-thumb.
- 03Adjust the op-ex ratio: 25% if you self-manage SFR, 30% standard, 35–40% if multi-family with on-site management.
- 04Read the cap rate. Compare to your target (5%+ for income, 4%+ for appreciation markets).
- 05Get the AI verdict — $19, one-time. Uses current FRED 30-year rate, your zip-level property tax, and 3 what-if scenarios.
Conventional wisdom is 4–10%, but the right answer depends on market and risk tolerance. In high-cost coastal markets (SF, NYC, Boston), 3.5–5% is normal because appreciation is doing the lift. In Sunbelt rental markets (Atlanta, Phoenix, Memphis), 7–9% is achievable but op-ex assumptions matter more. Below 3% is usually appreciation-bet territory; above 10% often hides high vacancy or deferred maintenance.
The 30% rule is the long-standing landlord rule of thumb covering vacancy, maintenance, property management, repairs, and minor capex. It roughly matches BiggerPockets reader surveys. You can override per property — single-family without management runs closer to 20%, while multi-family with on-site management can hit 40%.
No. Cap rate is an unlevered yield — it ignores financing. Two properties with the same cap rate can have wildly different actual returns once you factor in down payment, interest rate, and loan terms. Use cap rate to compare properties on an apples-to-apples basis. Use cash-on-cash for your actual cash return after debt service.
The AI verdict is a $19 second opinion, not investment advice. It cross-references your inputs with current rates (FRED MORTGAGE30US), median property tax (Census B25103), and historical rent trends (BLS CUUR0000SEHA), then runs 3 what-if scenarios. Best used as one input alongside a local agent and a CPA — not as a buy/no-buy gate by itself.