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.