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Cap Rate Calculator: What Does the Deal Actually Yield?

Cap rate is the property's unlevered yield — net operating income divided by price, before any mortgage. It's how investors compare deals on a level field and how appraisers and lenders sanity-check value. Enter the income and operating expenses below to see your NOI, your cap rate, and where it sits against typical market bands.

NLPNational Loan Provider·Dominick Prevete
Cap Rate Calculator

What does this deal actually yield?

Cap rate is net operating income divided by price — the unlevered yield, before any mortgage. Enter the income and expenses to see where the deal lands.

Purchase price / value$850,000
Annual gross rental income$96,000
Annual operating expenses (exclude mortgage)
Property taxes / yr
$
Insurance / yr
$
Management% of gross rent · $7,680
%
Vacancy% of gross rent · $4,800
%
Maintenance / yr
$
Cap rate
6.47%
4%5%6%7%8%9%Class A / urbanStabilized multifamilyValue-add / secondary
Stabilized range

A 6.47% cap sits in the stabilized multifamily / solid secondary-market range — a common target for income-focused investors.

Annual gross income$96,000
− Operating expenses$40,980
= Net operating income (NOI)$55,020
$55,020 NOI ÷ $850,0006.47%
Financing a deal at this cap? Get a rate →Bridge, multifamily, and commercial. No tax returns on most programs.

Estimate only. Cap rate is unlevered and excludes financing, income/capital taxes, and reserves. Actual underwriting depends on the full file. Not a commitment to lend.

The Basics

What is cap rate, and how is it calculated?

The capitalization rate — “cap rate” — is the annual net operating income a property produces divided by its price or value. It expresses the property's yield as a percentage, independent of financing. Two investors buying the same building at the same price have the same cap rate even if one pays all cash and the other borrows 75%. That's what makes it the standard yardstick for comparing one deal to another.

Cap Rate = NOI ÷ Price

$55,020 of NOI on an $850,000 property is a 6.47% cap rate.

What is NOI (and what it leaves out)

Net operating income is annual gross rental income minus annual operating expenses:

  • Property taxes — verify the actual figure for the specific parcel; NJ rates swing widely by municipality.
  • Insurance — landlord/hazard, plus flood where required.
  • Management — typically 6–10% of collected rent, even if you self-manage (it's real labor).
  • Maintenance & repairs — ongoing upkeep.
  • Vacancy / credit loss — a reserve for empty units and non-payment.

NOI deliberately excludes your mortgage (principal and interest), depreciation, income taxes, and one-time capital expenditures like a roof or HVAC replacement. Excluding debt is exactly what makes the cap rate an unlevered, property-level number. To bring financing into the picture, you want cash-on-cash return or DSCR instead.

Reading the Number

What's a “good” cap rate?

There isn't one. Cap rate is a pricing and risk signal, not a grade — the same bands the scale above moves through:

~4–5% — Class A / prime urban

Lower current yield, paid for stability and appreciation. Buyers accept a low cap because they expect strong rent growth and low risk. A low cap means a high price per dollar of income.

~5–7% — Stabilized multifamily / solid secondary

The range most income-focused investors target. Real cash yield with manageable risk; this is where a large share of bread-and-butter rental and small multifamily deals trade.

~7%+ — Value-add / secondary & tertiary

Higher current yield, but the market is pricing in more risk or more work — older assets, thinner markets, or operational upside you have to execute. A high cap is opportunity and warning in the same number.

The inverse relationship: price = NOI ÷ cap rate, so for a fixed NOI a lower cap rate means a higher price. At $55,000 of NOI, a 5% cap implies an $1,100,000 value while a 7% cap implies about $786,000 — same income, very different price. When rates or perceived risk rise, caps expand and values fall even if NOI hasn't moved.

A Worked Example

An eight-unit, traced from gross rent to cap rate.

These figures match the calculator's default scenario, so you can re-run and stress-test them above.

Purchase price
$850,000
Gross annual rent (8 units × ~$1,000/mo)
$96,000
Property taxes / yr
$18,000
Insurance / yr
$4,500
Management / yr (8%)
$7,680
Maintenance / yr
$6,000
Vacancy / yr (5%)
$4,800
= Operating expenses
$40,980
Net operating income ($96,000 − $40,980)
$55,020
Cap rate = $55,020 ÷ $850,000
6.47%

Watch the tax line. Property taxes are usually the single largest operating expense, and in New Jersey they vary enormously by town — Newton's 2025 general tax rate, for example, is $2.662 per $100 of assessed value (Town of Newton Tax Collector). A wrong tax assumption can swing NOI by thousands and the cap rate by a full point, so pull the actual figure for the specific parcel before you trust the result.

Related

Keep working the deal.

DSCR Calculator →

Will the rent cover the loan? Rent ÷ PITIA, with your pricing tier and a no-ratio path for sub-1.0 deals.

Rental Cash Flow Calculator →

Rent minus everything: mortgage, taxes, insurance, and reserves for vacancy, maintenance, management, and CapEx — with cash-on-cash.

LTV / LTC Calculator →

How much will a lender advance? LTV, LTC, and LTARV by deal type — see your maximum loan and which leverage ceiling binds.

Commercial Loans →

Multifamily 5+, mixed-use, retail, industrial. $500k–$25M, recourse and non-recourse.

Bridge Loans →

Short-term capital to acquire or reposition before you stabilize and refinance.

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Cap Rate FAQ

Common questions about cap rate and NOI.

What is a good cap rate?
There's no single 'good' number — cap rate is a pricing and risk signal, not a grade. Prime Class A and urban assets often trade at 4–5%, stabilized multifamily and solid secondary markets commonly land around 5–7%, and value-add or secondary/tertiary deals push 7%+. A lower cap means a higher price relative to income (priced for stability and appreciation); a higher cap means more current yield, usually with more risk or work. The 'right' cap depends on the asset class, market, and your strategy.
How do you calculate cap rate?
Cap rate = Net Operating Income (NOI) ÷ purchase price (or current value), expressed as a percentage. NOI is annual gross rental income minus annual operating expenses — property taxes, insurance, management, maintenance, and a vacancy allowance. Example: $55,020 NOI on an $850,000 property is a 6.47% cap rate. The calculator above does this live as you change the inputs.
What counts as an operating expense in NOI?
Operating expenses are the recurring costs of running the property: property taxes, insurance, property management, repairs and maintenance, utilities you pay, and a vacancy/credit-loss allowance. They do NOT include your mortgage payment (principal and interest), depreciation, income taxes, or one-time capital expenditures like a new roof. Excluding debt is what makes cap rate an unlevered, property-level yield you can compare across deals.
Does cap rate include the mortgage?
No — and that's the point. Cap rate deliberately excludes financing so it measures the property's own yield, independent of how you fund it. Two investors buying the same building at the same price have the same cap rate even if one pays cash and the other borrows 75%. To factor in the loan, look at cash-on-cash return or DSCR instead.
Cap rate vs. cash-on-cash return — what's the difference?
Cap rate is unlevered: NOI ÷ price, ignoring the loan. Cash-on-cash is levered: annual pre-tax cash flow (after the mortgage) ÷ the actual cash you invested (down payment, closing, rehab). Cap rate compares assets on a level field; cash-on-cash tells you what your invested dollars actually earn given your financing. Use our rental cash-flow calculator for the levered view.
Why do lower cap rates mean higher prices?
Because price and cap rate move inversely for a given NOI. Price = NOI ÷ cap rate, so at $55,000 NOI a 5% cap implies an $1.1M value while a 7% cap implies ~$786k. When demand is strong and risk is perceived as low, buyers accept lower caps (pay more per dollar of income). When risk or rates rise, caps expand and prices fall — even with NOI unchanged.
What cap rate do commercial lenders care about?
Lenders care less about the cap rate itself and more about debt service coverage (DSCR) — whether NOI covers the loan payment with cushion, typically 1.20–1.25x on stabilized commercial. A higher cap (more NOI per dollar of price) generally supports stronger coverage, but two deals at the same cap can underwrite very differently depending on rate, term, and leverage. We size the loan to the NOI and the coverage requirement.
Should I use purchase price or current market value?
Use purchase price when you're evaluating a deal you're buying (your 'going-in' cap rate). Use current market value to gauge where the asset would trade today or to estimate value from income (value = NOI ÷ market cap rate). Both are valid — just be consistent about which one you mean, since the same NOI produces different cap rates against different denominators.
Financing a deal at this cap?

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