Use this cap rate calculator to estimate operating return on a real estate investment. Enter your rental income, vacancy rate, and operating expenses to get net operating income, cap rate, expense ratio, and break-even rent.
Use template ->What is cap rate?
Cap rate, or capitalization rate, is the ratio of a property’s net operating income to its current market value or purchase price. It is expressed as a percentage and works as a quick yield signal in real estate, giving investors a way to compare properties without factoring in financing structure.
It is most useful as a comparison tool across similar properties in similar markets rather than as a standalone absolute measure. A cap rate of 6% means very different things in a primary market versus a tertiary one, so context matters as much as the number itself.
Cap rate formula
Cap Rate = Net Operating Income / Property Value
NOI = Gross Rental Income − Vacancy Losses − Operating Expenses
The inputs that move NOI most are rent levels and vacancy. Operating expenses tend to be more stable, which is why rent and occupancy assumptions are the first place to stress test.
How the cap rate calculator works
The calculator derives NOI from income and expense inputs, then divides by property value to produce the cap rate. NOI, expense ratio, and break-even rent sit alongside the headline rate because the single percentage rarely tells the full story on its own.
The sensitivity view shows how the cap rate shifts as rent or valuation assumptions change. That is often where the real decision quality lives: a property that looks reasonable at current rents can look thin quickly if occupancy softens by a few percentage points.
How cap rate is used in real estate
Cap rate is one of the first metrics applied in investment property screening. Lenders, brokers, and investors use it to benchmark a property’s income potential against market rates and to establish a baseline before committing time to full underwriting.
It also appears in reverse: given a target cap rate and expected NOI, you can back into an implied maximum acquisition price, which is a useful framing for offer structuring before detailed modeling begins.