Cap Rate Calculator
About this calculator
Free, instant, and backed by a CPA-led qualified intermediary — built for investors weighing a buy, a sale, or a 1031 exchange.
Free, instant, CPA-led QI
The tool is free, runs in your browser, and stores nothing you enter. Behind it is Universal Pacific, a qualified intermediary led by a CPA. When you sell and reinvest, we hold your exchange funds, prepare the documents, and keep your 45- and 180-day deadlines on the calendar so nothing slips.
What the calculator tells you
Enter NOI and price (or rent and expenses) and get the capitalization rate — the property's annual income as a percent of its value. You also get a plain-language read on where the rate sits, the exact NOI ÷ value math, and a note on what the number leaves out.
How cap rates work
One ratio, a few rules about what goes into it, and a clear sense of what it can and can't tell you.
What the rate measures
Cap rate is net operating income divided by price, times 100. A building that throws off $50,000 in NOI and sells for $1,000,000 carries a 5% cap rate. NOI is the rent and other income a property collects in a year minus the cost of running it: taxes, insurance, management, repairs, owner-paid utilities, and a vacancy allowance.
It does not subtract the mortgage and does not subtract income tax. That is the point. Two buyers, one paying cash and one borrowing 70%, see the same cap rate on the same building, so the rate compares properties on equal footing.
What's a good cap rate
There is no single good number. A lower rate means a high price relative to income, usually a newer building, a strong location, or a dependable tenant. A higher rate means more income per dollar, but the market is often pricing in a reason: a weaker location, deferred maintenance, or shorter leases.
Most income properties trade between 4% and 10%. The only honest benchmark is recent sales of similar properties in the same area. A 5% rate can be a buy in one market and an overpay in another.
Cap rate vs. cash-on-cash vs. ROI
Cap rate uses the full price and ignores debt. Cash-on-cash return divides your annual cash flow, after the mortgage, by the cash you actually put in, so it shifts the moment your loan terms change. ROI is broader still, folding in appreciation, loan paydown, and tax effects across the whole hold.
Use cap rate to compare properties, cash-on-cash to see what a deal returns on your money, and ROI for the full picture over time.
Where the rate goes quiet
The cap rate says nothing about financing, so a property with a strong rate can still lose money each month if the loan is expensive. It is a single-year snapshot, so it misses rent growth, lease rollover, and capital expenses ahead. And it rests entirely on the income and expense figures behind it.
If you are weighing a sale and reinvestment, the 1031 exchange calculator estimates the capital gains tax, depreciation recapture, and state tax you can defer by exchanging into a replacement property.
How it works
Four steps from a property's numbers to a rate you can act on.
Pick your inputs
Enter NOI directly, or switch to rent and expenses and we derive NOI for you.
Add the price
Enter the purchase price or current market value of the property.
Get the rate
See the cap rate, the NOI ÷ value math, and where the figure sits.
Benchmark it
Compare against recent sales of similar properties in the same market.
Plan the tax
Selling to reinvest? A 1031 exchange can defer the tax. Talk to a QI.
Frequently asked questions
The questions investors ask most about cap rates.
Is a higher or lower cap rate better?
Neither is better on its own. A higher cap rate means more income per dollar of price, which looks attractive, but it usually reflects more risk: a weaker market, an older building, or less certain rent. A lower cap rate signals a property buyers consider safer and are willing to pay more for. What you want depends on whether you are after current income or long-term stability and appreciation.
What is a good cap rate for rental property?
Most rental and commercial deals trade between 4% and 10%, but there is no universal target. A good cap rate is one that matches or beats recent sales of similar properties in the same market. A 6% rate might be excellent in one city and a clear overpay in another, so always benchmark against local comparables rather than a national rule of thumb.
How do you calculate net operating income?
Add up the property's annual income, mainly rent plus any other collections like parking or laundry, then subtract annual operating expenses: property taxes, insurance, management, repairs, owner-paid utilities, and a vacancy allowance. The result is net operating income. Leave out the mortgage payment and income tax, since NOI is meant to describe the property regardless of how it is financed.
Does the cap rate include the mortgage?
No. Cap rate deliberately excludes financing. That is what lets you compare two properties side by side without your loan terms distorting the picture. To factor in a mortgage, use cash-on-cash return instead, which measures the cash flow after debt service against the cash you put in.
What's the difference between cap rate and cash-on-cash return?
Cap rate divides net operating income by the full property price and ignores debt. Cash-on-cash return divides your annual pre-tax cash flow, after the mortgage payment, by the actual cash you invested. Because most buyers borrow, the two figures often differ, and cash-on-cash shifts whenever your financing changes while the cap rate stays the same.
Why do cap rates change over time?
Cap rates move with interest rates, rent trends, and how much risk buyers will accept. When borrowing costs rise, buyers tend to demand higher cap rates, which pushes prices down for the same income. When a market heats up and capital competes for deals, cap rates compress and prices climb. So a cap rate also reflects what investors expect from a market at a given moment, not just the property itself.
Start your exchange with time on your side
Run the numbers, then keep more of them. If you are selling an income property to buy another, a 1031 exchange can defer the tax. Universal Pacific sets up the exchange, holds the funds, and tracks every deadline with you.
Contact our team