What is Net Operating Income (NOI)?

Net Operating Income (NOI) is the annual income a property earns after subtracting all operating expenses, but before deducting mortgage payments or income taxes. NOI = Gross Rental Income – Vacancy Loss – Operating Expenses. It is the core number used to calculate cap rate.

How is cap rate different from cash-on-cash return?

Cap rate ignores financing — it compares NOI to total property value regardless of how it was purchased. Cash-on-cash return compares the annual cash flow after debt service to the actual cash you invested (down payment + closing costs). If you paid all cash, both numbers would be similar. If you used a mortgage, cash-on-cash accounts for the loan payment while cap rate does not.

Does a higher cap rate always mean a better investment?

Not necessarily. A higher cap rate can mean better returns, but it often reflects higher risk — such as a property in a declining market, poor condition, or with unreliable tenants. Lower cap rates in prime locations often reflect stable demand and long-term value. Investors must weigh return against risk, location quality, and property condition alongside the cap rate.

Cap Rate Calculator – Capitalization Rate, NOI & Rental Property Yield

Cap Rate Calculator

Enter your property value, rental income, and expenses to instantly find your capitalization rate, net operating income, gross yield, and more — free online cap rate calculator.

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Standard NOI formula

Property Details

Property Value / Purchase Price ($)

Current market value or what you paid

Currency Symbol

Annual Gross Rental Income ($)

Total rent before any deductions

Vacancy Rate (%)

Typical: 5–10% for most markets

Operating Expense Input

Operating Expenses (% of gross rent)

Typical range: 30–50% (includes tax, insurance, mgmt, repairs)

Annual Mortgage / Debt Service ($)

Optional — enables cash-on-cash return

Cash Invested / Down Payment ($)

Your actual out-of-pocket amount

Expected Annual Appreciation (%)

Optional — shows total return estimate

Hold Period (years)

For projected future value

Your Investment Results

Enter your property details and click Calculate to see your cap rate and investment metrics.

Capitalization Rate

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Investment Breakdown

Gross Rental Income —

Vacancy Loss —

Effective Gross Income —

Operating Expenses —

Net Operating Income (NOI) —

Gross Rental Yield —

Price-to-Rent Ratio —

Cash-on-Cash Return —

Annual Cash Flow (after debt) —

Est. Total Return (— yrs) —

Income & Expense Breakdown

NOI vs Expenses vs Mortgage

What Is Cap Rate?

Cap rate — short for capitalization rate — is the most commonly used metric in real estate investing. It tells you how much annual income a property earns as a percentage of its value, without factoring in how you financed it.

A property worth $500,000 that produces $35,000 in net operating income per year has a cap rate of 7%. That means you would earn back 7% of your investment each year through income alone — before any appreciation.

Cap rate is useful for quick comparisons between properties or markets, setting purchase prices, and measuring risk. A lower cap rate usually means a safer, more stable investment. A higher cap rate often means more income — but more risk too.

Cap Rate Formula

The calculation is straightforward:

Effective Gross Income (EGI) = Gross Rent – Vacancy Loss
Net Operating Income (NOI) = EGI – Operating Expenses
Cap Rate = (NOI ÷ Property Value) × 100

Example: Property value $400,000. Gross rent $36,000/yr. Vacancy 5% = $1,800 loss. EGI = $34,200. Expenses 35% = $11,970. NOI = $22,230. Cap Rate = 22,230 ÷ 400,000 = 5.56%

Note: Operating expenses include property taxes, insurance, maintenance, management fees, and HOA — but not mortgage payments.

Cap Rate by Property Type

Property Type	Typical Cap Rate	Risk Level
Single-Family Rental	4% – 7%	Low–Medium
Small Multifamily (2–4 units)	5% – 8%	Low–Medium
Large Multifamily (5+ units)	4% – 7%	Low–Medium
Office Building	5% – 8%	Medium
Retail / Strip Mall	5% – 9%	Medium–High
Industrial / Warehouse	4% – 7%	Low–Medium
Self-Storage	5% – 8%	Medium
Hospitality / Hotel	7% – 12%	High

Ranges vary by location, property condition, and market conditions. Data reflects general market expectations.

How to Interpret Cap Rate

Cap Rate	Signal	What It Often Means
Below 4%	Very Low	Prime urban market; very safe but low yield
4% – 6%	Low–Fair	Stable market, steady demand, modest income
6% – 8%	Good	Solid return for most investors
8% – 10%	Strong	Higher income; watch for risk factors
Above 10%	High Risk	May reflect poor location, low demand, or distress

These are general signals — not absolute rules. Always compare to similar properties in the same market.

Cap Rate — Common Questions

What is cap rate in real estate?

Cap rate (capitalization rate) is a percentage that shows how much annual income a property produces relative to its purchase price or current market value. It equals the Net Operating Income divided by the property value, multiplied by 100. A property worth $500,000 earning $40,000 NOI per year has an 8% cap rate — meaning you earn 8% of your investment back through income each year.

What is a good cap rate for a rental property?

It depends on your market and risk tolerance. In general: below 4% is typical for prime urban areas with very stable demand; 4–6% is considered fair; 6–8% is solid for most markets; anything above 9% should be examined carefully for risk factors. There is no single "good" number — always compare to similar properties in the same location.

What does Net Operating Income (NOI) include?

NOI = Gross Rental Income – Vacancy Loss – Operating Expenses. Operating expenses include property taxes, building insurance, maintenance and repairs, property management fees, landscaping, utilities paid by the landlord, and HOA fees. NOI does not include mortgage payments, income taxes, depreciation, or capital improvements — those come later when calculating cash flow or taxes.

How is cap rate different from gross rental yield?

Gross rental yield is simply annual gross rent divided by property value — it ignores expenses and vacancies. Cap rate uses NOI, which accounts for vacancies and all operating costs. Cap rate is more accurate for comparing real investment performance. Gross yield is useful for a quick first look, but never for making final decisions.

Why does cap rate not include mortgage payments?

Cap rate is a property metric — it measures the income-producing ability of the real estate itself, regardless of how you paid for it. Including a mortgage would make it a financing metric, not a property metric. This means cap rate lets you fairly compare a property you bought with cash versus one that was financed. Use cash-on-cash return if you want to account for your specific financing terms.

What is the price-to-rent ratio and how is it used?

The price-to-rent ratio (PRR) is the property price divided by the annual gross rent. A PRR below 15 is generally considered favorable for investors. Between 15 and 20 is a mixed market. Above 20 often means it is cheaper to rent than own from an investment perspective. It is a quick way to compare buying versus renting across different cities.

Typical Cap Rates by US City (Residential)

These are approximate market averages for residential rental properties. Actual rates vary by neighborhood, property type, and current market conditions.

City / Metro	Market Type	Typical Cap Rate	Median Home Price	Price-to-Rent Ratio

Net Operating Income by Vacancy & Expense Rate

Shows annual NOI ($) for a property with $48,000 gross annual rent at various vacancy and expense combinations.

Vacancy Rate	Exp 25%	Exp 30%	Exp 35%	Exp 40%	Exp 45%	Exp 50%

Cap Rate by Property Value & NOI

Find the cap rate for different combinations of property value and annual NOI.

Global Residential Cap Rates by Country

Approximate average gross rental yields for major global real estate markets. Net cap rates are typically 1–3 percentage points lower after expenses.

Country	Major City Example	Gross Yield (avg)	Est. Net Cap Rate	Market Note
United States	Various	4% – 8%	3% – 6%	Varies widely by market
United Kingdom	London / Manchester	3% – 6%	2% – 4%	London yields compressed
Germany	Berlin / Munich	2% – 4%	1.5% – 3%	Strict tenant protection laws
Australia	Sydney / Melbourne	3% – 5%	2% – 4%	Strong capital growth markets
Canada	Toronto / Vancouver	3% – 5%	2% – 3.5%	High prices suppress yields
Japan	Tokyo / Osaka	4% – 7%	3% – 5%	Stable demand, aging stock
UAE	Dubai / Abu Dhabi	5% – 9%	4% – 7%	No property tax; high yields
India	Mumbai / Bangalore	2% – 4%	1.5% – 3%	Capital appreciation focus
Brazil	São Paulo / RJ	5% – 9%	4% – 7%	Higher risk, higher yield
South Africa	Cape Town / JHB	7% – 12%	5% – 9%	Risk premium for currency

Source: General market research. Figures are illustrative averages and change with market conditions.

Cash-on-Cash Return Comparison

Shows annual cash-on-cash return (%) for different down payment percentages and annual NOI amounts. Assumes a 30-year mortgage at 7% on the financed portion.

Cash-on-cash return = Annual pre-tax cash flow ÷ Total cash invested. Assumes 7% mortgage rate, 30-year term.