The Capitalization Rate (Cap Rate) is a fundamental concept in the world of real estate
investing. It represents the rate of return a property is expected to generate on an
all-cash purchase.
How to Use This Tool
Net Operating Income (NOI): Enter the total annual income generated by
the property (rent, etc.) minus all operating expenses (taxes, insurance, maintenance).
Do not include mortgage payments.
Property Value: Enter the current market value or the price you paid
for the property.
Interpreting the Result
The Cap Rate is a quick way to compare the relative value of similar real estate investments.
A higher Cap Rate generally indicates a higher return on investment, but potentially higher
risk.
Cap Rate is a snapshot in time. For a multi-year analysis that considers the time
value of money and your exit strategy, our Real
Estate IRR Calculator is the more powerful tool.
Capitalization (Cap) Rate:
0.00%
Frequently Asked
Questions (FAQ)
What is Cap Rate?
▼
The Capitalization Rate (Cap Rate) is a metric used to Estimate the
potential return on an investment property. It is calculated by dividing the property's
Net Operating Income (NOI) by its current market value.
What is a "Good" Cap Rate?
▼
A "good" cap rate depends on the risk. Safer assets (e.g., Class A buildings in major
cities) might have cap rates of 4% to 6%, while higher-risk properties
often yield 8% to 10% or more to compensate investors.
Cap Rate vs. ROI (Cash-on-Cash)?
▼
Cap Rate looks at the property's raw ability to generate income,
regardless of debt. ROI (or Cash-on-Cash Return) accounts for your
mortgage payments and measures the return on your actual cash investment.