Guide
Cap rate calculator: the formula, a free tool, and a worked sample
Cap rate — capitalization rate — is one way to describe the unlevered yield of a property based on the figures you assume. It is not a prediction of what you will earn, and it is not an appraisal. Use our free calculator to compute it alongside cash-on-cash, DSCR, and monthly cash flow.
Open the free cap rate calculator
The formula
Cap rate = NOI ÷ purchase price
Net operating income (NOI) is effective gross income minus operating expenses. In our calculator, effective gross income is scheduled rent and other income, minus a vacancy allowance. Operating expenses include taxes, insurance, HOA dues, a management percentage of EGI, a maintenance reserve percentage of EGI, and other operating costs you enter. NOI excludes debt service (the mortgage) and excludes the CapEx reserve, which we show on a later line. That is the same convention as our Rental Property Cash Flow Analyzer workbook.
Worked sample (demonstration figures only)
The sample deal in that workbook — 789 Demonstration Blvd, labeled sample layout only — uses a $200,000 purchase price, $2,000 monthly rent, a 5% vacancy rate, and operating inputs that produce $15,936 of NOI. Cap rate is then:
$15,936 ÷ $200,000 = 7.968% (shown as 7.97%)
Click “Load sample deal” on the calculator to see this come out of the same formulas, including cash-on-cash of 7.12% and DSCR of 1.40. Those numbers are a demonstration, not a market comparable and not a recommendation.
What cap rate does not tell you
- It ignores how you finance the purchase. Two buyers of the same property can have the same cap rate and very different cash-on-cash returns.
- It is only as good as the NOI and price you type. An optimistic rent or a missing tax bill will change the result.
- It is not a “good” or “bad” score on its own. What is typical varies by market, property type, and year, and this site will not tell you a target to chase.
- It is not an appraisal, not a comparative market analysis, and not investment advice.
Use it with cash-on-cash and DSCR
Cash-on-cash divides annual cash flow (NOI minus annual debt service) by the cash you put in. DSCR divides NOI by annual debt service and is often used as a coverage illustration for a loan. Our calculator reports all three, plus monthly cash flow and an optional stress test (rent down 10%, vacancy up 5 points, rate up 2 points) that is an illustration, not a forecast. Read the cash flow calculator guide for those definitions.
A workbook you can save
The free tool is for one scenario at a time and does not store your work. The Etsy workbook ($29.99) screens up to five deals, has a BRRRR sheet, and keeps income and expense logs for properties you already operate. It is a set of blank templates and calculators — not investment advice, not a Schedule E, and not a prediction.
View the Cash Flow Analyzer on Etsy