Cap Rate Calculator for Rental Properties

What Is Cap Rate and What Does It Tell You?

Capitalization rate (cap rate) is the unleveraged yield a rental property produces. It answers: if I paid all cash for this deal, what percent return would the property kick off each year from operations alone?

Because cap rate excludes financing, it's the cleanest way to compare one property to another regardless of how they're bought. Two identical duplexes with wildly different loans still have the same cap rate — but very different cash-on-cash returns.

• NOI — gross rent × (1 − vacancy) − operating expenses. Excludes mortgage, depreciation, and taxes.
• Property Value — usually purchase price for new deals; for existing holdings, use current market value.
• Cap Rate = NOI ÷ Value. That's it.

Cap Rate vs. Cash-on-Cash Return: What's the Difference?

Cap rate and cash-on-cash return are the two most common return metrics for residential rentals, and investors regularly confuse them. They measure different things:

• Cap rate is unleveraged. NOI ÷ property value. It tells you how the asset performs on its own.
• Cash-on-cash is leveraged. Annual after-debt cash flow ÷ cash you put in (down payment + closing + rehab). It tells you what your money is earning.

Leverage amplifies cash-on-cash in both directions. A 6% cap rate deal with a 7% loan is a losing trade on cash-on-cash — the property earns less than the debt costs. See our deeper walkthrough on cap rate vs. cash-on-cash return for worked examples.

What's a Good Cap Rate in 2026?

“Good” is always relative to your alternatives and your market. As of 2026, with 10-year Treasuries in the 4–5% band and investment mortgage rates near 7%, residential cap rates have broadly reset:

• Primary-market SFR: 4.5–5.5% typical. Anything sub-4% is effectively a bet on price appreciation.
• Secondary-market SFR: 5.5–7%. The cash flow sweet spot for long-term buy-and-hold.
• Small multifamily (2–4 units): 6–8% in most markets; 8%+ in tertiary and smaller metros.
• Class-C value-add: 8%+ after stabilization, but requires execution and capital reserves.

Quick gut check: if your cap rate is below your borrowing cost, the deal is negatively leveraged — you'll need rent growth or appreciation to earn a return. If it's above, leverage works for you.