Cap Rate Calculator
Calculate capitalization rate, NOI, GRM, and cash-on-cash return for any investment property. Compare deals side by side with the formula explained.
🏘️ Property & Income
💸 Annual Operating Expenses
🏦 Financing (for Cash-on-Cash)
Capitalization Rate
0%
📐 Cap Rate & Investment Formulas
Effective Gross Income = (Monthly Rent × 12 × (1 − Vacancy%)) + Other Income
NOI = Effective Gross Income − All Operating Expenses
Cap Rate = (NOI ÷ Purchase Price) × 100
GRM = Purchase Price ÷ Annual Gross Rent
Cash-on-Cash = (NOI − Annual Debt Service) ÷ Total Cash Invested × 100
Cap Rate Explained: The Core Metric of Real Estate Investment
The capitalization rate (cap rate) is the most widely used metric for evaluating income-producing real estate. It measures a property's expected annual return assuming you paid all cash — no mortgage. This makes it a pure, financing-neutral comparison tool. A $350,000 property generating $24,000 in NOI has a 6.86% cap rate regardless of how you finance it.
Cap Rate Benchmarks by Market Type
- Gateway cities (NYC, SF, LA, Boston): 3–5% — driven by appreciation expectations
- Major secondary markets (Atlanta, Dallas, Denver): 5–7%
- Tertiary/Midwest markets (Indianapolis, Memphis, Cleveland): 6–9%
- Distressed or rural markets: 8–12%+ (higher risk)
- Multi-family residential: typically 4–6% in strong markets
- Commercial retail/industrial: typically 5–8%
Cap Rate vs. Cash-on-Cash: Which Matters More?
Cap rate tells you the unlevered return — useful for comparing properties regardless of your financing. Cash-on-cash return tells you the yield on your actual cash invested, accounting for your mortgage. With today's higher interest rates (6.5–7.5%), many properties that show 6–7% cap rates produce negative or near-zero cash-on-cash returns with typical 25% down financing — a critical distinction the calculator above reveals.
The 50% Rule and 1% Rule as Quick Filters
Experienced investors use rules of thumb to quickly screen properties before detailed analysis. The 50% Rule says operating expenses (excluding mortgage) typically consume 50% of gross rent — use it to quickly estimate NOI. The 1% Rule says monthly rent should be at least 1% of purchase price ($350,000 property → $3,500/month rent) for reasonable cash flow. These rules are rough filters, not substitutes for the full analysis in this calculator.
Frequently Asked Questions
It depends on market and asset class. In gateway cities (NYC, SF), 3–5% is standard. Secondary markets: 5–7%. Midwest/tertiary: 7–10%. Most investors target 6–8% as a balanced return. Higher cap rates often mean higher risk, lower appreciation potential, or both.
Cap rate = NOI ÷ Property Value. It ignores financing. Cash-on-cash = Annual Cash Flow ÷ Total Cash Invested. Cash-on-cash reflects your actual leveraged return after mortgage payments. In a high-rate environment, a 7% cap rate property can have a 2–3% or even negative cash-on-cash return if financed at 7%+ interest.
No — cap rate is specifically a pre-financing metric. Never include mortgage principal or interest in operating expenses when calculating NOI or cap rate. That's what makes cap rate useful for comparing deals: it's financing-neutral. Use cash-on-cash return when you want to account for your specific financing terms.
GRM = Purchase Price ÷ Annual Gross Rent. A property at $350,000 with $33,600/year gross rent has a GRM of 10.4×. Lower GRM = better value. GRM under 10 is generally considered good for residential rentals. GRM is faster to calculate than cap rate (no expense data needed) but less accurate as it ignores expenses and vacancy.