Cap Rate Calculator
Calculate capitalization rate (cap rate) for rental property investments. Get NOI, cash flow analysis, and property performance assessment with our free calculator.
About This Calculator
Cap rate (Capitalization Rate) is one of the most important metrics for evaluating real estate investments. It measures the expected rate of return on a rental property based on its net operating income relative to its market value. Real estate investors, property appraisers, and commercial brokers use cap rates to compare investment opportunities across different properties and markets.
Our cap rate calculator computes NOI, cap rate, annual cash flow, and provides a performance assessment with easy-to-understand bands from Low to Excellent. It includes an income vs expenses doughnut chart and a comparison with average market cap rates, helping you quickly evaluate whether a property meets your investment criteria.
Cap Rate Formula:
Cap Rate = Net Operating Income / Property Value x 100
NOI = Annual Rental Income - Annual Operating Expenses
For example, a property worth ₹5,000,000 with annual rental income of ₹600,000 and expenses of ₹120,000 would have an NOI of ₹480,000 and a cap rate of 9.6%.
Regional Notes:
India: Cap rates in Indian real estate typically range from 6-10% for residential properties and 8-12% for commercial properties. Major metro areas like Mumbai and Delhi often see lower cap rates (4-6%) due to high property prices relative to rental yields.
US: The US market shows cap rates varying significantly by property type and location. Class A multifamily properties in prime urban areas might trade at 4-6% cap rates, while Class B/C properties in secondary markets could offer 7-10%. Investors often use a 10% cap rate as a quick screening benchmark.
UK: UK commercial property cap rates typically range from 4-8%, with London prime properties at the lower end and regional assets at the higher end. Residential buy-to-let investors commonly see net yields between 3-6% depending on location and property type.
Methodology
The cap rate formula divides Net Operating Income (NOI) by the current property value or purchase price. NOI is calculated as gross annual rental income minus all operating expenses including property management, maintenance, insurance, property taxes, and repairs. The cap rate does not include mortgage payments, making it a measure of unlevered return that allows direct comparison across properties regardless of financing structure.
Features:
- Cap rate calculation with assessment bands
- NOI and cash flow analysis
- Income vs expenses doughnut chart
- Comparison with average market cap rates
- Shareable calculation links with URL state
- Region-aware defaults for India, US, and UK
Frequently Asked Questions
What is cap rate in real estate?
Cap rate (Capitalization Rate) is a real estate valuation metric that measures the expected rate of return on a rental property. It is calculated as: Cap Rate = Net Operating Income / Property Value x 100. A higher cap rate indicates higher potential return and usually higher risk, while a lower cap rate suggests a more stable investment.
How is cap rate calculated?
Cap rate is calculated by dividing the Net Operating Income (NOI) by the property value. NOI is the annual rental income minus operating expenses (property management, repairs, insurance, taxes, etc.) but before mortgage payments. For example, a property worth ₹50,00,000 with NOI of ₹5,00,000 has a cap rate of 10%.
What is a good cap rate for rental property?
A good cap rate depends on the location and property type: 4-6% is typical for stable, low-risk markets (prime urban areas); 6-8% is average for most markets; 8-10% is good for higher-risk areas; above 10% indicates potentially excellent returns but may come with higher risk or property issues. Compare cap rates within the same market for meaningful analysis.
What is NOI in real estate?
Net Operating Income (NOI) is the annual income generated by a rental property after deducting all operating expenses but before deducting mortgage payments and income taxes. NOI = Gross Rental Income - Vacancy Loss - Operating Expenses (property management, repairs, insurance, property taxes, etc.). NOI is a key component of cap rate calculation.
Does cap rate include mortgage?
No, cap rate does not include mortgage payments. Cap rate uses Net Operating Income (NOI), which is calculated before debt service (mortgage payments). This makes cap rate a measure of property performance independent of financing. To analyze returns including financing, use cash-on-cash return or IRR analysis instead.
What is the difference between cap rate and ROI?
Cap rate measures the property's potential return based on its full market value, while ROI (Return on Investment) measures return based on the actual cash invested. Cap rate ignores financing and shows the unlevered return. ROI includes leverage effects. Cap rate is useful for comparing properties, while ROI measures your personal investment return.
How does cap rate differ from cash-on-cash return?
Cash-on-cash return measures the annual return on the actual cash invested (down payment), while cap rate measures return on the full property value. Cash-on-cash return includes the effects of mortgage financing and debt service, making it lower than cap rate when mortgage rates are high and higher when using significant leverage. Cap rate is better for comparing properties, while cash-on-cash shows your actual yield on invested capital.
Can cap rate be negative?
Yes, a negative cap rate occurs when annual operating expenses exceed rental income, resulting in negative Net Operating Income. This would mean the property is losing money before even considering mortgage payments. A negative cap rate typically signals a poor investment unless there is strong appreciation potential or strategic value in the property. Most investors look for positive cap rates of 4% or higher for viable investments.