PROPERTY WORKSHEET / COST AND VALUE
Cap Rate Calculator
Estimate effective gross rental income, net operating income, and capitalization rate from vacancy, operating expenses, and property value.
All calculator worksheets02 / Results
Illustrative default results. Change inputs and select Calculate.
- Effective gross income
- Net operating income (NOI)
- Cap rate
Formula
Effective gross income = gross rental income × (1 − vacancy percentage ÷ 100). NOI = effective gross income − operating expenses. Cap rate = NOI ÷ property value × 100.
Worked example
The example starts with $36,000 annual gross rent and 5% vacancy, leaving $34,200.00 effective gross income. Subtracting $12,000 operating expenses gives $22,200.00 NOI. Against a $300,000 property value, the cap rate is 7.40%. This illustrates the calculation, not an expected investment return.
Interpret the result
Cap rate expresses the entered annual operating income relative to the entered property value before financing. Negative NOI and negative cap rates are allowed: they indicate expenses exceed effective income under the assumptions. A higher cap rate does not automatically mean a better property. It can reflect differing income assumptions, maintenance needs, risk, or valuation rather than a superior opportunity.
Assumptions and input rules
Gross income and operating expenses must be finite and nonnegative, vacancy must be 0 through 100, and value must be greater than zero. Use consistent annual figures for the same property. Include recurring property taxes, insurance, management, and ordinary maintenance in expenses when relevant. Do not deduct the same vacancy allowance again as an expense. Reset restores the illustrative property file and its results.
Limitations
Debt service and financing terms are excluded, so this is not cash-on-cash return or cash available after mortgage payments. Income taxes, appreciation, capital expenditures, acquisition costs, and selling costs are not modeled. Property taxes can belong in operating expenses, but the tool does not predict reassessment or your tax liability. Market value accuracy directly affects the denominator; a listing price is not proof of value. Check leases, collections, local vacancy, repair needs, insurance, tax records, and local due diligence with qualified advisers. Planned replacement of a roof or other major asset may require cash beyond ordinary operating expenses.