Understanding Cap Rate
How we calculate. Cap rate % = net operating income ÷ property value × 100. The form uses the same arithmetic as the worked examples on this page. See our methodology and accuracy policy.
Real-world scenario: A typical Cap Rate case uses annual noi 48000 and property value 800000. Enter the same figures below to reproduce the worked path.
What is Cap Rate?
A core income-property valuation metric. Cap rate ignores financing—compare unlevered income yields.
- NOI = income − operating expenses (before debt service)
- Value is purchase price or market value
- Higher cap often means higher yield/risk—context matters
The Formula
Worked Example
Common Use Cases
- Deal screening: income yield check
- Broker comps: market cap bands
- Portfolio reviews: asset mix
Pro Tips
- Use trailing or forward NOI consistently
- Don’t mix gross rent with NOI
- Compare same asset class/location
Limitations: Cap Rate results are educational real-estate planning aids—not appraisals, loan offers, or investment advice. Confirm figures with qualified professionals and your lender.
FAQ
Does cap rate include mortgage?
No. Cap rate is unlevered. Use cash-on-cash for levered return.
What if value is 0?
Cap rate is undefined—enter a positive property value.
Authoritative References
For real estate investing concepts, consult:
- National Association of Realtors — market and practice context
- Investopedia — Cap rate — capitalization rate basics
- CFPB — homebuying and closing education