Calculate cap rate

Calculate unlevered property cap rate and the price implied by a required target rate.

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ToolCap Rate Calculator
Input
Output
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How it works

Twelve monthly rents minus annual operating expenses produce net operating income, with mortgage payments excluded. Cap rate divides NOI by price and target price rearranges that relationship; expenses default to 0, but target rate is required because markets do not share one defensible hurdle.

Formula
cap rate = net operating income ÷ property price × 100
implied price = net operating income ÷ target cap rate
  • Negative NOI remains negative rather than being recast as zero income.
  • This measure compares property operations before financing choices.

Worked example

A 200,000 property renting at 1,200 a month
With 2,400 a year in operating costs, checked against a 7% target cap rate
Input
											Property price: 200000
Monthly rent: 1200
Annual operating expenses: 2400
Target cap rate percent: 7
Output
												Net operating income: 12000
Cap rate percent: 6
Target cap rate percent: 7
Implied price at target: 171428.57

When to use this

Commercial-property screening, buy-to-let offer analysis, and portfolio valuation compare operating income with price before mortgage financing.

Edge cases

  • Operating expenses above annual rent produce negative NOI, cap rate, and implied target price instead of being clamped to 0.
  • Mortgage payments are excluded because cap rate is an unlevered property measure.
  • A zero target rate is rejected because implied price would divide by zero.