AtlasCalcsUtility Calculation Suite
2026-09-21 7 min read

Rental Property Cap Rate Calculator

The capitalisation rate the income stream offers at today’s price for a rental property. Live calculator with worked steps and charts.

Calculator

Purchase Price Help
$

The price you pay, before closing costs.

Monthly Rent Help
$

Gross scheduled rent before vacancy.

Vacancy & Credit Loss(%) Help
%

Share of scheduled rent lost to turnover and non-payment.

Property Tax (Annual)
$
Insurance (Annual)
$
Maintenance & Repairs(%) Help
%

Share of effective income budgeted for repairs.

Property Management(%) Help
%

Share of collected rent charged by the manager.

Advanced options (3)
Other Monthly Income Help
$

Laundry, parking, storage, late fees, pet rent.

Utilities (Annual, Landlord-Paid)
$
Other Expenses (Annual)
$

This rental property calculator runs on a full rental pro-forma: rent is annualised and reduced by vacancy, every operating expense is itemised to reach NOI, and the loan amortises monthly at the rate entered. Results update live as you type.

Results

Optimal

Capitalisation Rate (Cap Rate)

7.13%

In line with most rental markets

Net Operating Income

$21,387

Purchase Price

$300,000

Gross Yield

10.40%

Before expenses.

Operating Expense Ratio

27.84%

Effective Gross Income

$29,640

Operating Expenses

$8,253

Vacancy Loss

$1,560

Value at a 6% Cap Rate

$356,447

What the NOI is worth to a buyer requiring 6%.

Value at an 8% Cap Rate

$267,335

The same income at a higher required return.

Live results update as you type — currently showing capitalisation rate (cap rate) of 7.13%. Replace the defaults with your own rent roll, tax bill and insurance quote for an exact comparison.

Visualizations

Income Waterfall

31,200Gross rent
-1,560Vacancy
-8,253Opex
21,387NOI

Where the Gross Rent Goes

Operating expenses26%
Vacancy & credit5%
Debt service58%
Cash flow11%

Loan Balance Over the Term

Cap Rate

7.1%
015

Formula

The capitalisation rate is the unlevered, first-year yield of the income stream. Re-arranged, it prices any property: divide your NOI by the cap rate the market pays for that asset type.

Cap rate = NOI ÷ Property value × 100

Alternative Form

Value = NOI ÷ Cap rate

Variables

SymbolNameUnitDescription
NOINOI$/yrIncome after operating expenses, before debt
VValue$Price paid or current market value
RCap rate%Market yield for comparable properties

Explanation

Cap rate is how the market prices income: it moves inversely with price. A 6% cap on $30,000 of NOI values the building at $500,000 — the same NOI at an 8% cap, $375,000.

Derivation

Cap rate is the reciprocal of the income multiple: a 5% cap is a 20× multiple of NOI. It excludes financing, so it measures the property, not your deal structure.

Step-by-Step Calculation

Follow each step to understand how the result is calculated from your inputs.

Step 1

Build effective gross income from the scheduled rent and vacancy.

EGI = gross rent × (1 − vacancy %)
Gross rent:$31,200
Vacancy:5.00%
Result: $29,640 effective income
Step 2

Deduct every operating expense — financing is never included in a cap rate.

NOI = EGI − operating expenses
Effective income:$29,640
Operating expenses:$8,253
Intermediate: $29,640 − $8,253
Result: $21,387 NOI
Step 3

Divide the net operating income by the price.

Cap rate = NOI ÷ price
NOI:$21,387
Price:$300,000
Intermediate: $21,387 ÷ $300,000
Result: 7.13%
Final Answer
7.13%

Worked Examples

See how the calculator works with different scenarios.

Scenario

The rental property cap rate calculator run on the values above, showing the full calculation path rather than only the answer.

Inputs

Price:300000
Rent Monthly:2600

Calculation

1. Build effective gross income from the scheduled rent and vacancy. → $29,640 effective income 2. Deduct every operating expense — financing is never included in a cap rate. → $21,387 NOI 3. Divide the net operating income by the price. → 7.13%

Result

Capitalisation Rate (Cap Rate): 7.13%

Interpretation

$21,387 of NOI on a $300,000 price is a 7.13% cap rate. The same income is worth $356,447 at a 6% cap and $267,335 at an 8% cap.

Understanding Your Result

Your Result: Capitalisation Rate (Cap Rate): 7.13%

Typical range: Cap rates vary by market and asset class: 3–5% is common in high-growth coastal markets, 6–9% in much of the country, and 9%+ in tertiary markets or value-add deals.

What This Means

Cap rate is how the market prices income: it moves inversely with price. A 6% cap on $30,000 of NOI values the building at $500,000 — the same NOI at an 8% cap, $375,000.

Why It Matters

$21,387 of NOI on a $300,000 price is a 7.13% cap rate. The same income is worth $356,447 at a 6% cap and $267,335 at an 8% cap.

Professional Interpretation

$21,387 of NOI on a $300,000 price is a 7.13% cap rate. The same income is worth $356,447 at a 6% cap and $267,335 at an 8% cap.

How this is calculated

The capitalisation rate is the unlevered, first-year yield of the income stream. Re-arranged, it prices any property: divide your NOI by the cap rate the market pays for that asset type.

What drives the result

The pro-forma method: annualise the rent, deduct vacancy to reach effective gross income, subtract operating expenses to reach net operating income, then subtract debt service to reach cash flow. Each layer answers a different question — value (cap rate), lender safety (DSCR) and investor return (cash-on-cash).

Recommendations

  • •A cap rate is a one-year unlevered snapshot — pair it with a cash-on-cash figure to see the effect of your financing.
  • •When comparing two buildings, normalise the expenses first: deferred maintenance and self-management distort the NOI.

Educational Content

Introduction

Rental analysis starts with one year of operations: scheduled rent, vacancy and credit loss, every operating expense, and the debt payment. NOI is what remains for the owner; everything else — cap rate, cash flow, DSCR, cash-on-cash — is NOI viewed from a different angle.

Concept Explanation

The pro-forma method: annualise the rent, deduct vacancy to reach effective gross income, subtract operating expenses to reach net operating income, then subtract debt service to reach cash flow. Each layer answers a different question — value (cap rate), lender safety (DSCR) and investor return (cash-on-cash).

Applications

▸Screening a listing against your price and return requirements in minutes
▸Comparing two or three candidate properties on the same pro-forma assumptions
▸Preparing a lender-ready one-year operating statement for a loan request
▸Setting rents and budgeting expenses for a property you already own

Benefits

  • •One consistent model across every property, so comparisons are fair
  • •Forces every expense to be named and budgeted rather than ignored
  • •Separates the property’s performance from the financing around it

Limitations

  • •A one-year pro-forma cannot capture capital expenditures that arrive in lumps — roofs, systems and exteriors need their own reserve
  • •Actual vacancy and expense ratios vary by market and management quality; a single assumption hides that spread
  • •The model assumes the rent roll is at market; in-place rents below market flatter the deal

Best Practices

  • •Build the pro-forma from your own quotes — insurance, taxes and management — not the seller’s summary
  • •Stress the deal: rent down 5%, vacancy up 5% — if it still pays, it will survive a soft year
  • •Fund a capital-expenditure reserve of about 5% of rent before calling any cash flow "positive"

Common Misconceptions

Myth: NOI is the profit the owner pockets.
Truth: NOI comes before the mortgage payment; only cash flow (NOI − debt service) reaches the owner’s bank account.
Myth: A property with positive cash flow is always a good deal.
Truth: Positive cash flow on an overpriced building can still be a worse investment than the same cash in an index fund — compare returns, not just sign.
Myth: Operating expenses are optional line items.
Truth: Vacancy, maintenance and management are real costs even when self-managed; underwriting them at zero inflates the price you can justify.

Practical Tips

  • •Pull the market cap rate from recent sales of the same property type in the same submarket
  • •Use the cap-rate valuation (NOI ÷ market cap) to set offers independently of the asking price

Common Mistakes

Comparing a gross cap rate to a net one.
Some listings quote rent-based "caps"; rebuild NOI yourself before comparing.
Forgetting cap rate excludes leverage.
A 6% cap deal can out- or under-perform a 5% cap deal depending entirely on the debt terms.

Assumptions

This calculator makes the following assumptions to provide estimates:

Stabilised income: NOI reflects a normal operating year, not lease-up or renovation.

Limitations

Be aware of these limitations when using this calculator:

Limitation: A one-year pro-forma cannot capture capital expenditures that arrive in lumps — roofs, systems and exteriors need their own reserve
Limitation: Actual vacancy and expense ratios vary by market and management quality; a single assumption hides that spread
Limitation: The model assumes the rent roll is at market; in-place rents below market flatter the deal

Frequently Asked Questions

Answers to common questions about this calculator.

Is a higher cap rate always better?
Higher cap usually means higher risk — weaker location, shorter leases or deferred maintenance. Match the cap rate to the risk you are actually buying.
How is a cap rate calculated?
Net operating income divided by property value, times 100. A $30,000 NOI on a $500,000 property is a 6% cap.
How do you value a property with a cap rate?
Value equals NOI divided by the cap rate as a decimal: $30,000 at 6% is $500,000. One cap point moves that value by roughly 15%.
What is a good cap rate?
4–6% in prime coastal and gateway markets, 6–8% in balanced secondary markets, 8%+ for value-add or tertiary stock.
Why do cap rates differ by property type?
Apartments trade tightest on stable occupancy; office and retail carry lease-roll risk; industrial has compressed on logistics demand. Same city, different caps.
Cap rate vs interest rate — what is the spread?
Investors demand cap rates above borrowing costs: a 2-point spread over the mortgage rate at 60–70% LTV is the traditional cushion for positive leverage.
What is a going-in vs going-out cap?
Going-in prices the purchase on year-one NOI; going-out (terminal) prices the assumed sale, usually 0.5–1 point higher. The gap drives much of the modelled return.
How does NOI growth change value at a fixed cap?
Every $1,000 of durable NOI at a 6% cap is worth about $16,700. Forced appreciation — raising NOI — is how operators manufacture value.
Do cap rates include financing?
No — that is the point. Cap rates measure the unlevered property so deals compare fairly; financing enters later through cash-on-cash and DSCR.
What compresses cap rates?
Falling interest rates, strong rent growth expectations and institutional demand. Compression lifts values without any NOI improvement.
What expands cap rates?
Rising rates, oversupply, obsolescence and uncertainty. A one-point expansion cuts value ~12–15% at typical cap levels.
Should I use trailing or pro-forma NOI?
Trailing-twelve-months for honesty, stabilised pro-forma for value-add — and never the seller’s pro-forma without auditing every expense line.
How do capital expenditures fit the cap rate?
They don’t — cap rates use NOI before capex. Heavy-capex stock (old roofs, short-lived systems) needs a higher going-in cap or a separate reserve.
What cap rate do appraisers use?
Band-of-investment or comparable-sales extraction: recent local sales of similar risk, adjusted for conditions. Ask for the comps behind any quoted cap.
Can a home have a cap rate?
Yes — imputed rent minus ownership-scale expenses over value. It usually prints 3–5%, which is why renting can beat owning on yield alone.
How does vacancy change the cap rate?
Higher vacancy lowers NOI and — at a fixed price — the cap. Buyers of vacant buildings underwrite stabilised NOI, then discount for lease-up risk and cost.
What is a reversionary cap rate?
The cap applied to fully-let market rent, used when current income is below market. The gap between passing and reversionary yield is the lease-up upside.
Do taxes change the right cap rate?
Pre-tax caps dominate US quoting; after-tax investors in high brackets effectively need higher pre-tax caps. Keep the tax basis consistent across deals.
How do I pick a cap rate for an offer?
Start from recent comparable sales, adjust for your risk (condition, tenancy, location tier), then cross-check against the mortgage-rate spread.
What happens when rates rise but caps don’t?
Negative leverage: borrowing costs exceed property yield and cash flow goes negative. Deals done in low-rate years face this at refinance.
Are online cap-rate estimates reliable?
They divide listed rent by list price with no expense data — entertainment, not underwriting. Recompute from real taxes, insurance and maintenance.
How do triple-net leases affect caps?
NNN passes expenses to tenants, so NOI is cleaner and caps trade lower for the same rent. Compare NNN caps only against NNN caps.
What cap rate signals a value-add deal?
2–4 points above stabilised comps with a credible path to close the gap through renovation, lease-up or management. The spread is the pay for the work.
How often do cap rates move?
Slowly with rates and sentiment, fast in shocks. Re-extract from fresh comps yearly; a 2021 cap misprices a 2026 deal.
Cap rate or cash-on-cash — which decides?
Cap rate compares properties; cash-on-cash compares financings. Screen the asset on cap, then decide the capital structure on cash-on-cash.
Who uses the rental property cap rate calculator?
It is used by rental investors screening and pricing deals, by owner-operators budgeting expenses and rents, and by agents, lenders and advisers sanity-checking the numbers before money moves. It sits in the Rental Property group of the Real Estate Investing section of Atlascalcs.
How accurate is the rental property cap rate calculator?
Every figure follows from the inputs using standard property underwriting mathematics, so it is accurate to the quality of the values you enter. Lenders, appraisers and tax assessors each apply their own adjustments, so expect small differences against formal documents.
Do I need to sign up or pay to use this calculator?
No. Every Atlascalcs calculator is free, runs entirely in your browser and never asks for an account. Nothing you enter is uploaded or stored.
Can I use these numbers in a formal valuation or loan application?
The calculator is an underwriting aid, not an appraisal or a lender offer. Lenders and appraisers apply their own adjustments, so treat the output as a disciplined estimate to bring to those conversations.
How do I choose realistic inputs?
Pull rent from comparable leases, property tax from the current assessment, insurance from a quote, and management and maintenance from what operators in your market actually pay. Seller pro-formas are marketing documents.

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Glossary

Technical terms used in mortgage calculations explained in plain language.

Net Operating Income (NOI)
Effective gross income minus operating expenses, before debt service and income tax. The core measure of a property’s earning power.
Capitalisation Rate
NOI divided by price or value — the unlevered yield the income stream offers at today’s price.
Pro-Forma
A forward-looking operating statement projecting income and expenses, as opposed to the historical statement.

Authoritative References

Trusted sources and standards referenced by this calculator.

Applicable Standards

Level-payment amortisation, payments assumed in arrearsIncome and expenses annualised; percentages entered as annual ratesStraight-line depreciation per IRC §168 recovery periodsMoney rounded for display only; all calculations run at full precision

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Page Information

Last Updated:

2026-09-21

Version:

2.0.0

License:

Free to use for educational and professional purposes.