Underwrite
Cap rate calculator for rental property deals
Cap rate answers one question: if you paid all cash, what yield does this property throw off from operations? It ignores your loan on purpose so you can compare deals across markets. Enter NOI and price — get the rate. Build NOI first if you only have rent and expenses.
Assumptions
Returns stack
- NOI
- —
- Cap rate
- —
- Max price @ target
- —
When to use
Screen listings side by side, check a seller’s “pro forma” against your own vacancy and expense assumptions, or show a partner why a 4% market and an 8% market are not the same risk.
When not to
Don’t use cap rate alone to greenlight a leveraged buy — financing shows up in cash flow and cash-on-cash. And don’t treat a “national average” as your buy box.
Assumptions: NOI is before debt service and income tax. CapEx reserves are not magically included unless you folded them into the NOI you typed.
Worked examples
Input
NOI $28,000 / yr Price $400,000
Output
Cap rate 7.0%
Same NOI at a higher price compresses the cap — you’re paying more for the same operations.
Input
NOI $28,000 / yr Target cap 6%
Output
Max price ≈ $466,667
Reverse the formula when you know the yield you need and want a ceiling price.
Common traps
- Cap rate uses NOI, not cash flow after the mortgage.
- Seller “NOI” often skips vacancy and CapEx — rebuild it yourself before you trust the cap.
- A “good” cap rate is market-relative; don’t chase a blog’s national average.