The cap rate is the most fundamental metric for rental property evaluation. It tells you the unleveraged return on a property based on net operating income. Higher cap rates mean better returns but potentially higher risk areas.
Cap Rate:
NOI:
How to Use This Tool
Enter the purchase price.
Enter total annual rental income.
Enter total annual expenses (taxes, insurance, maintenance, management).
Click Calculate to see NOI, cap rate, and cash-on-cash return.
The Formula
Cap Rate = NOI / Purchase Price. NOI = Gross Income - Operating Expenses. Typically 4-12% for residential properties.
Why It Matters
You are considering a $500,000 duplex renting for $2,400/month. After $6,000/year in expenses, net operating income is $22,800. Your cap rate is 4.56% — compare to local cap rates (6-8% in many markets).