Cap Rate Calculator — NOI Builder, Benchmarks & Reverse Calc

What is cap rate in real estate?

Cap rate, short for capitalization rate, is the most widely used metric in real estate investment analysis. It expresses a property's annual net operating income as a percentage of its purchase price — telling you what return the property generates if you paid cash with no mortgage. The formula is simple: divide the Net Operating Income (NOI) by the property's purchase price or market value, then multiply by 100.

How to calculate cap rate — step by step?

Calculate Gross Rental Income — multiply the monthly rent by 12. A unit renting at $2,500/month generates $30,000/year. Subtract vacancy allowance — multiply by your vacancy rate (typically 5–10%) and subtract it. At 5% vacancy: $30,000 × 0.95 = $28,500 effective gross income from rent. Add other income — parking, laundry, storage, pet fees. Add these to get your Effective Gross Income (EGI).

Cap rate vs. cash-on-cash return — what's the difference?

These two metrics answer different questions. Cap rate tells you what the property earns on its own. Cash-on-cash tells you what your cash earns after the mortgage. Cap Rate Measures the property's unlevered return. Ignores how much you borrowed and at what rate. Use it to compare properties side-by-side and negotiate purchase price.

How to calculate NOI (Net Operating Income)?

NOI is the single most important number in real estate investing. Everything else — cap rate, property value, loan approval — flows from it. Getting it right matters. NOI = Effective Gross Income − Total Operating Expenses ⚠️ The #1 NOI mistake: Investors frequently include mortgage payments in their expense calculation. Mortgage is NOT an operating expense. Cap rate is a pre-debt metric.