What each input means
This calculator builds NOI from rent and expenses, then divides by value — the standard cap rate definition investors use when comparing rentals. For financing and lender coverage, add DSCR and a full rental property analysis.
- Purchase price or property value — The denominator in cap rate. For an acquisition, use your all-in basis or contract price as you prefer to compare deals.
- Gross rental income — Annual rent from the lease or the market rent you are underwriting.
- Vacancy — Expected loss to turnover and non-payment; reduces gross rent before expenses.
- Operating expenses — One annual total in the tool. In your underwriting, break out the lines below so the total is credible.
- Property taxes — Include the tax bill attributable to operations (often a large share of opex on SFR and small multifamily).
- Insurance — Landlord policy premium for the year.
- Maintenance — Repairs, turnover, and a reserve for bigger items over time.
- Property management — Fees even if you self-manage today (buyers often underwrite a management fee).
- Net operating income (NOI) — Effective gross income minus operating expenses; the numerator in cap rate (still before debt service).
What is a good cap rate?
Cap rate is a snapshot of unleveraged yield — “good” depends on what you are optimizing for.
- Markets and product type — Good cap rates vary by metro, neighborhood, and asset class; comparing within a peer set beats chasing a national average.
- Lower cap rates — More common in expensive or appreciation-focused markets where investors accept thinner operating yield.
- Higher cap rates — Can indicate stronger income relative to price, but can also reflect higher perceived risk, weaker tenants, or heavier costs.
- Not a buy/sell signal alone — Pair cap rate with financing, reserves, tenant quality, and your return requirements. Use a checklist like our rental property analysis checklist before you offer.
Cap rate vs cash-on-cash return
Cap rate ignores how you finance the deal: it is NOI divided by value. Cash-on-cash return uses after-debt cash flow and the cash you actually invested (down payment, closing, rehab). Same property, different loan terms → similar cap rate, different cash-on-cash.
For a deeper comparison, read cap rate vs cash-on-cash return and what is a good cash-on-cash return for rental property.
Cap rate vs DSCR
Cap rate measures property yield before debt: NOI ÷ value. DSCR measures whether rental NOI can cover loan payments: NOI ÷ annual debt service. You can have an attractive cap rate on paper and still miss lender DSCR if leverage or rates push debt service high.
Screen yield here, then stress financing on the DSCR calculator when you care about loan qualification.
Cap rate vs cash flow
Cap rate answers how the asset yields on value before financing. Monthly cash flow is what is left for you after the mortgage and any owner-paid items you model.
A reasonable cap rate does not guarantee strong cash flow. High leverage, short amortization, or a rising rate environment can shrink cash flow even when the unleveraged cap rate looks fine. That is why the cluster pairs this page with full rental analysis and DSCR.
Frequently asked questions
What is cap rate?
Cap rate (capitalization rate) is net operating income divided by property value. For rentals, it expresses unleveraged yield from operations — before mortgage payments — so you can compare properties and markets on a similar basis.
How do you calculate cap rate on a rental property?
Cap rate equals annual net operating income divided by property value (often purchase price). NOI is effective gross rent (gross rent minus vacancy) minus operating expenses. This calculator rolls typical expense lines into one annual operating expense field and shows NOI and cap rate from your inputs.
What is a good cap rate for a rental property?
There is no universal number. Good cap rates vary by market, property type, tenant quality, and your strategy. Lower cap rates are common in expensive or appreciation-focused markets. Higher cap rates can mean more income relative to price, but may also reflect higher risk or heavier expenses. Do not use cap rate alone to decide whether to buy.
Does cap rate include mortgage payments?
No. Cap rate intentionally excludes debt service so you can compare yield before financing. After-financing returns belong in metrics like cash-on-cash return or monthly cash flow; lender coverage belongs in DSCR.
Is cap rate the same as cash-on-cash return?
No. Cap rate uses NOI and property value. Cash-on-cash return uses after-debt cash flow and the cash you invested. Leverage changes cash-on-cash; it does not change cap rate. See our guide on cap rate vs. cash-on-cash return for worked examples.
Can a high cap rate be risky?
Sometimes. A high stated cap rate can reflect real income strength, but it can also come from understated expenses, deferred maintenance, weak tenants, or a distressed location. Always reconcile the cap rate with rent comps, expense detail, and financing.
Related tools & guides
- Rental property calculator — cap rate, cash flow, DSCR, and cash-on-cash in one hub.
- DSCR calculator — NOI vs annual debt service for rental loans.
- All calculators — BRRRR, mortgage payment, 1% rule, and more.
- Housing market data — context for rent and pricing assumptions.
- Rental property analysis checklist
- Cap rate vs cash-on-cash return
- What is a good cash-on-cash return?
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