Cap Rate Calculator
The capitalization rate of a property: net operating income ÷ price.
Result
Cap rate (%)
10.00
Monthly net income
250,000
How it works
The capitalisation rate divides a property's net operating income by its price: 12,000 of net income on a 200,000 property is a 6% cap rate. It is the standard yardstick for comparing income properties. The word "net" is what separates it from gross rental yield. Net operating income is rent minus the costs of running the building — property tax, insurance, management, maintenance, expected vacancy — but before mortgage payments and income tax. Two properties with identical rent can have very different cap rates once real costs are counted. Cap rates also work backwards as a valuation tool: divide the net income by the cap rate typical for the area, and you get an estimate of what the building is worth. That is how commercial property is routinely priced, and why a small change in prevailing cap rates moves valuations sharply.
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Frequently asked questions
What is a good cap rate?
Often 5–10%, but it depends heavily on the city, risk and property type.
Cap rate vs rental yield?
Cap rate uses net income (after costs); gross yield uses rent only, so cap rate is lower and more realistic.
Is a higher cap rate always better?
No. A high cap rate often prices in higher risk — a weaker location, older building or less reliable tenants. Prime properties trade at low cap rates precisely because their income is considered safe.
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