Cap Rate Calculator – Complete Guide for Real Estate Investors
The Cap Rate Calculator on MyTimeCalculator helps you estimate the income yield of a rental or commercial building. Cap rate (short for capitalization rate) is one of the most common metrics used by real estate investors to compare deals, price assets and evaluate whether the return matches the risk level and financing strategy.
With the basic tab you can quickly calculate cap rate when you already know net operating income (NOI) and value. The advanced tab walks through the full income statement by converting monthly rent, vacancy, expenses and capital expenditures into annual figures and then computing NOI and cap rate step by step.
1. What Is Cap Rate?
Cap rate measures a’s annual net operating incomeative to its value or purchase price. The basic formula is:
A higher cap rate means the generates more income per dollar of value, but it may also reflect higher perceived risk, weaker location or heavier management requirements. Lower cap rates often go with more stable, prime or institutional-quality assets where investors are willing to accept a lower yield for safety and liquidity.
2. Understanding Net Operating Income (NOI)
Net operating income is the cornerstone of cap rate analysis. It captures recurring income and expenses from normal operations, excluding financing and taxes. A common structure is:
− Vacancy and credit loss
= Effective gross income (EGI)
− Operating expenses (taxes, insurance, maintenance, management, utilities, etc.)
− Capital expenditures (reserves for big items such as roof, HVAC, unit turns)
= Net operating income (NOI)
The advanced tab of this calculator follows this structure using your monthly inputs and converts the results into annual NOI for the cap rate computation.
3. Using the Basic Cap Rate Calculator
If you already know the annual NOI and the current value, the basic tab is the fastest way to estimate cap rate:
- Enter the annual NOI for the.
- Enter the property value or purchase price.
- Click the calculate button to see the cap rate, monthly NOI, income yield and value-to-NOI multiple.
The calculator also reports the value-to-NOI multiple, which is the value divided by NOI. This is effectively the inverse of cap rate and tells you how many “years of NOI” you are paying for when you buy the asset.
4. Using the Advanced Real Estate Analysis Tab
When you are still underwriting a deal and need to build NOI from the ground up, the advanced tab is more helpful:
- Enter monthly rental income and any other monthly income such as parking, storage or laundry to get gross potential income.
- Enter the vacancy rate as a percentage. The calculator applies this to gross potential income to estimate vacancy and credit loss and then computes effective gross income (EGI).
- Enter monthly operating expenses and monthly CapEx reserves. These are annualized and subtracted from EGI to produce net operating income (NOI).
- Enter the property value or purchase price to compute cap rate and key ratios such as the operating expense ratio.
The results section shows annual gross potential income, vacancy, EGI, expenses, CapEx, NOI, cap rate and a concise performance snapshot so you can quickly see where the money is going.
5. Key Ratios from Cap Rate Analysis
Beyond the cap rate itself, the calculator highlights several useful ratios:
- Operating expense ratio: Operating expenses plus CapEx divided by effective gross income. High ratios may indicate an inefficient building or under-estimated maintenance needs.
- NOI margin: Net operating income divided by effective gross income. This shows how much of your collected income remains after operating costs.
- NOI yield on value: Cap rate expressed as a percentage, showing the unlevered income return on the.
These metrics are particularly useful when you compare multiple deals or evaluate the impact of renovations, rent increases or expense reductions on a single asset.
6. Cap Rate vs. Cash-on-Cash and IRR
Cap rate is an unlevered measure based on income and value only. It does not account for financing or the timing of cash flows. When you add a loan or look at multi-year projections, other metrics become important:
- Cash-on-cash return: Annual cash flow after debt service divided by the actual cash invested (equity).
- Internal rate of return (IRR): The discount rate that sets the net present value of all projected cash flows to zero over the holding period.
Cap rate is usually the first filter to screen deals, while cash-on-cash and IRR come into play when you build a full financing and exit model.
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Cap Rate Calculator FAQs
Frequently Asked Questions
Quick answers to common questions cap rate, net operating income and how to use this calculator when underwriting rental properties or commercial real estate deals.
Cap rate is normally quoted using annual net operating income (NOI). The basic tab of this calculator expects NOI as a yearly figure. In the advanced tab you enter monthly amounts for rent, expenses and capex; the calculator converts them to annual values and then computes NOI and cap rate for you automatically.
There is no single “good” cap rate because it depends on location, asset class, risk, interest rates and your strategy. Core, low-risk properties in prime markets often trade at lower cap rates, while value-add or tertiary market properties may have higher cap rates to compensate for additional risk and effort. Many investors compare cap rates within the same market and type rather than using a universal target.
No. Cap rate is an unlevered measure. It uses net operating income before debt service and income taxes. Mortgage payments, interest and principal are separate and are typically analyzed using cash-on-cash return, debt coverage ratio (DCR) or internal rate of return (IRR). The calculator here focuses on the’s income stream and operating performance only.
Vacancy assumptions are often based on historical occupancy in the submarket, lender guidelines or your own experience with similar properties. Operating expenses typically include taxes, insurance, utilities (where the owner pays), maintenance, management, marketing and small repairs. Many investors also include a CapEx reserve for big-ticket items such as roofs, HVAC systems and unit renovations to avoid overstating NOI and cap rate.
Yes. The structure of cap rate and NOI is the same whether you are evaluating single-family rentals, small multifamily buildings, office space, retail units or industrial properties. You may just have different patterns of rent, vacancy and expenses depending on lease terms and tenant mix. The calculator is flexible enough to handle all of these as long as you can estimate the income and operating costs.
In many income-producing markets, investors effectively price assets by capitalizing NOI at a target cap rate. Rearranging the formula, Value = NOI ÷ Cap rate. If you know the prevailing market cap rate for a type and location, you can estimate a value for your NOI. Conversely, if you have a seller’s asking price, you can use this Cap Rate Calculator to see what implied cap rate that price represents and decide whether it fits your return expectations.