What is a good cap rate?

There is no single 'good' cap rate — it depends on the market, property class, and risk. In strong, low-risk markets cap rates of 4–6% are common, while higher-risk or smaller markets may see 7–10%+. The cap rate is most useful for comparing similar properties in the same area, not as an absolute target.

What is included in net operating income (NOI)?

NOI is all rental and other property income minus operating expenses — property taxes, insurance, maintenance, property management, utilities you pay, and a vacancy allowance. It is calculated BEFORE mortgage debt service, income taxes, and depreciation. Cap rate is an unleveraged metric, so financing is deliberately excluded.

What is the difference between cap rate and cash-on-cash return?

Cap rate measures the property's unleveraged yield: NOI divided by the full purchase price, ignoring financing. Cash-on-cash return measures your leveraged yield: annual cash flow after the mortgage, divided only by the cash you actually invested. Two investors can buy the same property at the same cap rate but earn very different cash-on-cash returns depending on their financing.

Should I use purchase price or current market value?

Use purchase price to evaluate a deal you're buying. Use current market value to gauge the yield on a property you already own at today's prices. The math is identical — the cap rate is just NOI divided by whichever value you enter.

Free real estate investor tool

Cap Rate Calculator

The capitalization rate is a property’s unleveraged annual yield: net operating income divided by price. Enter your NOI and purchase price to see the cap rate, and use the target helper to find the price that hits a yield you want. Updates as you type.

Your deal

Annual net operating income (NOI)

Rental income minus operating expenses, before mortgage payments.

Purchase price (or market value)

Result

Cap rate: 6.00%
Annual NOI: $30,000

What should I pay to hit a target cap rate?

Target cap rate

Implied max price

$428,571

At this NOI and target yield

How this is calculated

The formula. Cap rate = annual net operating income ÷ purchase price, expressed as a percent. A $30,000 NOI on a $500,000 property is a 6.0% cap rate.

What NOI includes. Net operating income is all rental (and other) income less operating expenses — property taxes, insurance, maintenance, management, and a vacancy allowance — but before mortgage debt service, income taxes, and depreciation. The cap rate is deliberately unleveraged: it measures the property, not your financing.

How to read it. A higher cap rate generally means more income per dollar of price (and often more risk or a softer market); a lower cap rate means a pricier, often more stable asset. Cap rates are most useful for comparing similar properties in the same market.

Tenvale tracks the income side for you

Rent, expenses, and per-property cash flow are tracked automatically, so the NOI behind your cap rate is always current — not a once-a-year spreadsheet guess.

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Frequently asked questions

What is a good cap rate?: There is no single 'good' cap rate — it depends on the market, property class, and risk. In strong, low-risk markets cap rates of 4–6% are common, while higher-risk or smaller markets may see 7–10%+. The cap rate is most useful for comparing similar properties in the same area, not as an absolute target.
What is included in net operating income (NOI)?: NOI is all rental and other property income minus operating expenses — property taxes, insurance, maintenance, property management, utilities you pay, and a vacancy allowance. It is calculated BEFORE mortgage debt service, income taxes, and depreciation. Cap rate is an unleveraged metric, so financing is deliberately excluded.
What is the difference between cap rate and cash-on-cash return?: Cap rate measures the property's unleveraged yield: NOI divided by the full purchase price, ignoring financing. Cash-on-cash return measures your leveraged yield: annual cash flow after the mortgage, divided only by the cash you actually invested. Two investors can buy the same property at the same cap rate but earn very different cash-on-cash returns depending on their financing.
Should I use purchase price or current market value?: Use purchase price to evaluate a deal you're buying. Use current market value to gauge the yield on a property you already own at today's prices. The math is identical — the cap rate is just NOI divided by whichever value you enter.

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