How to use this calculator
- Enter or choose property price or value.
- Enter or choose gross scheduled income (per year).
- Enter or choose vacancy and credit loss.
- Enter or choose operating expenses (per year).
- Enter or choose target or market cap rate.
- The cap rate updates as you type. Use Copy result or Share to keep it.
Method
EGI = Gross income × (1 − Vacancy); NOI = EGI − Operating expenses; Cap rate = NOI ÷ Value × 100; Implied value = NOI ÷ Target cap rate
- EGI
- effective gross income after vacancy and credit loss
- NOI
- net operating income before debt service, depreciation and income tax
Worked example
- EGI = 150,000 × 95% = 142,500.
- NOI = 142,500 − 50,000 = 92,500.
- Cap rate = 92,500 ÷ 1,200,000 = 7.71%.
- Value at 8% = 92,500 ÷ 0.08 = 1,156,250.
The property yields a 7.71% cap rate; at an 8% market cap rate its NOI supports a value of about 1.16 million.
What the result means
A higher cap rate means more income per unit of price, usually with more risk or less expected growth. If the asking price is above the value at the market cap rate, the price assumes rents or NOI will rise.
Assumptions and limits
- NOI is a stabilised, one-year figure.
- Operating expenses exclude mortgage payments, capital improvements and depreciation.
- Cap rate ignores financing, future growth and the time value of money; use a discounted cash flow for detailed valuation.
Questions
Does cap rate include the mortgage?
No. It measures the property as if bought for cash. Cash-on-cash return is the measure that includes your loan payments.
What is a good cap rate?
There is no universal figure. Cap rates vary by city, property type and interest rates; compare with recent sales of similar buildings.
Please note: Returns are illustrations at a constant rate, not predictions or guarantees. Investments can lose value. This is not investment advice.