RealtyCopilot

Cap Rate Calculator

Analyze rental property investment returns with NOI and cap rate.

Property

$
$

Used for cash-on-cash return calculation

Annual Income

$

Monthly rent × 12

%

Annual Expenses

$
$
$
$

~8–10% of rent if using a manager

$

Capitalization Rate

—

NOI ÷ Property Value

Gross Rental Income

—

After vacancy

Total Expenses

—

Annual operating costs

Net Operating Income

—

Income − expenses

Cash-on-Cash Return

—

NOI ÷ down payment

Expense Breakdown

Total Annual Expenses —

Cap Rate Benchmarks

Below 4% Low return — often Class A urban properties
4% – 6% Moderate — stable markets
6% – 8% Good — target range for most investors
8% – 10% High — may indicate higher risk
Above 10% Very high — investigate risk factors

What Is Cap Rate?

The capitalization rate (cap rate) is the most widely used metric in commercial and residential real estate investing. It tells you the expected annual return on a property as if you paid all cash — independent of financing.

The Formula

Cap Rate = Net Operating Income (NOI) ÷ Property Value

NOI = Effective Gross Income (after vacancy) − All Operating Expenses

Operating expenses include taxes, insurance, maintenance, management fees, and utilities. They do not include mortgage payments, depreciation, or income taxes.

What Is a Good Cap Rate?

A "good" cap rate depends on your market, risk tolerance, and investment strategy. In competitive markets like New York City or San Francisco, cap rates of 3–4% are common. In secondary markets in the Midwest or South, 7–9% is achievable.

  • Lower cap rates typically mean lower risk, slower appreciation markets
  • Higher cap rates can mean higher returns but also higher risk, deferred maintenance, or weaker tenant demand
  • Most experienced investors target 6–8% as a balanced range

Cap Rate vs. Cash-on-Cash Return

Cap rate ignores financing — it's a property-level metric. Cash-on-cash return measures the actual return on the cash you invested (down payment) after debt service. When you use leverage (a mortgage), your cash-on-cash return can be higher or lower than the cap rate depending on your interest rate vs. the cap rate (this is called "positive" or "negative leverage").