§ 01 / TOOL
$1,000,000 · $7,000/mo rent.
STATUS ACTIVEMODE NET CAPLATENCY <1MS
> INPUT
MODE NET CAP RATE
// PURCHASE PRICE
$
// MONTHLY RENT
$
// MONTHLY EXPENSES
$
CAP RATE.
NET
// RESULT
6.60%
// NOI (ANNUAL)
$66,000
// GROSS YIELD
8.40%
// CASH FLOW / MO
$5,500
// FORMULA
NOI $66,000 ÷ $1,000,000 = 6.60%
A $1,000,000 property renting for $7,000/month with $1,500/month in expenses nets $66,000/year — a 6.60% cap rate on a 8.40% gross yield.
§ 02 / ABOUT
How cap rate measures a rental.
Cap rate (capitalization rate) is the annual net operating income divided by the purchase price — the unlevered yield of a rental property. cap rate = (annual rent − annual expenses) / price. It ignores financing and lets you compare properties directly.
// THREE NUMBERS THIS TOOL COMPUTES
- Cap rate — net yield after expenses. 5–8% is typical for US single-family rentals; higher usually signals risk or deferred maintenance.
- Gross yield — rent divided by price, ignoring expenses. Useful for quick back-of-envelope comparisons.
- Monthly cash flow — rent minus expenses. This is pre-mortgage; a property with great cap rate can still cash-flow negative after debt service.
// WHAT COUNTS AS EXPENSES
Property tax, insurance, HOA, maintenance reserve (often budgeted at 1% of value/year), vacancy allowance (5–8% of gross rent), property management (8–10%), and utilities if landlord pays. Not the mortgage payment — that's financing, not operations. Many first-time investors leave these out and overstate their returns.
Related: Mortgage, Rent vs Buy, ROI.
§ 02 / FAQ
Questions. Answered.
What is a cap rate?+
Capitalization rate — the unlevered annual return on a real estate asset. It equals net operating income (NOI) divided by purchase price, times 100. A 6% cap rate means you earn 6% of the purchase price per year in net operating income, before any mortgage payments.
Why does this calculator ignore the mortgage?+
Cap rate is a property metric, not a financing metric. Two investors paying cash and using 80% leverage on the same building have the same cap rate but very different cash-on-cash returns. Isolating the asset from the debt lets you compare properties apples-to-apples, regardless of how each buyer plans to finance them.
What counts as operating expenses?+
Property taxes, insurance, HOA dues, property management, routine maintenance, vacancy reserve, utilities you cover, landscaping. Do NOT include mortgage principal or interest — that’s debt service, not an operating expense. A useful rule of thumb: operating expenses typically run 30–50% of gross rent on a single-family rental.
What’s a "good" cap rate?+
Depends on the market. Prime urban markets (San Francisco, Manhattan) trade at 3–5% cap rates — investors accept low yield because they expect appreciation and stability. Secondary/tertiary markets and riskier asset classes trade 6–10%+. Higher cap rates mean higher yield but usually higher risk: older buildings, tougher neighborhoods, or more volatile rents.
Cap rate vs gross yield — what’s the difference?+
Gross yield = annual rent ÷ price. Cap rate = net operating income ÷ price. Gross yield pretends expenses are zero; cap rate subtracts them. Both appear in the results. A large gap between the two signals expense-heavy properties (older buildings, high-tax areas, lots of repairs).
Does the URL update so I can share?+
Yes. As you type, the URL updates to /cap-rate/300000-2500-500 (price-rent-expenses, all monthly except price). Copy the URL bar or use the SHARE button.
§ 04 / TOOLS
Related calculators.
§ 05 / READING