Find a property's cap rate in seconds. Enter the purchase price and gross monthly rent, set a vacancy allowance and an operating-expense ratio, and the calculator returns net operating income (NOI) and the capitalization rate — the unleveraged yield buyers actually compare deals on. Then set a target cap rate to see what the income is worth at that yield and whether the asking price is above or below value.
Taxes, insurance, management, repairs, reserves — but not the mortgage. Estimate carefully: small changes here move NOI, the cap rate, and value a lot.
Results
Capitalization Rate
5.93%
Net operating income as a share of purchase price.
Annual NOI
$20,748
Effective gross income
$31,920
Annual operating expenses
$11,172
7.00%
3%12%
Implied value at 7.00%
$296,400
Versus purchase price
Overpriced by $53,600
The same deal, every year of the hold
Every figure on this page is year one, computed once on numbers that never move. GoFlexi's underwriting model runs the same property across the whole hold — rent growth, vacancy, capex, a refinance, and the exit — and reports what the deal actually returned.
Cap rate — short for capitalization rate — is the unleveraged annual return an income property produces, expressed as a percentage of its price. It's net operating income divided by value, and it's the single number commercial and residential investors use to compare deals on equal footing regardless of how each is financed. A 7% cap rate means the property throws off 7% of its purchase price in net income every year before any loan payment. Because it ignores financing, two buyers looking at the same building will calculate the same cap rate even if one pays cash and the other borrows 80%.
This calculator builds NOI the way underwriters do rather than asking you to guess it. Gross rent is annualized, reduced by a vacancy and credit-loss allowance to get effective gross income, then reduced again by operating expenses — taxes, insurance, management, repairs, and reserves — entered as a percentage of that effective income. What's left is NOI. Divide NOI by the purchase price and you have the cap rate. Operating expenses deliberately exclude the mortgage and depreciation, because cap rate measures the property's performance, not the buyer's loan or tax position. Because value is so sensitive to NOI, get these expense estimates as close to the property's real numbers as you can — a few points of expense ratio can swing the cap rate, and the price it supports, materially.
The real power of cap rate is that it works backward, too: value equals NOI divided by cap rate. Set a target cap rate — the yield you'd need to make the deal worth it, or the rate comparable sales are trading at — and the calculator shows the price that income justifies and how far the asking price sits above or below it. When you're ready to layer in a loan and see the leveraged return, or structure seller financing around the purchase, the GoFlexi calculator picks up where this leaves off.
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Frequently Asked Questions
What is cap rate (capitalization rate)?
Cap rate is a property's net operating income divided by its value or purchase price, shown as a percentage. It's the unleveraged annual yield the property produces — what you'd earn if you bought it with cash and collected the net income. A 6% cap rate means the property generates 6% of its price in net income each year before financing. Investors use it to compare income properties on equal terms, since it strips out how each deal is financed.
What is the cap rate formula?
Cap rate = net operating income (NOI) ÷ purchase price × 100. NOI is the property's annual income after vacancy and all operating expenses but before the mortgage payment and depreciation. So for a property with $24,500 of NOI bought at $350,000, the cap rate is 24,500 ÷ 350,000 = 7.0%. This calculator builds the NOI for you from rent, vacancy, and an operating-expense ratio so you don't have to estimate it separately.
What is a good cap rate?
It depends on the market and asset type, but most residential rental deals trade somewhere between 4% and 10%. Lower cap rates (3–5%) are typical in expensive, low-risk coastal markets where buyers accept a smaller yield for stability and appreciation. Higher cap rates (8–10%+) show up in cheaper or higher-risk markets where buyers demand more current income to compensate. There's no universal 'good' number — a good cap rate is one that beats your alternatives at a risk level you're comfortable with.
What's the difference between cap rate and cash-on-cash return?
Cap rate is unleveraged: it measures the property's yield as if you paid all cash, ignoring any loan. Cash-on-cash return is leveraged: it's the cash flow after the mortgage payment divided by the actual cash you put in (down payment and closing costs). Cap rate tells you how good the asset is; cash-on-cash tells you how good your deal is once financing is added. With positive leverage, cash-on-cash can exceed the cap rate; with negative leverage it falls below it.
How does cap rate set a property's value or price?
Rearrange the formula and value = NOI ÷ cap rate. If a property produces $30,000 of NOI and comparable sales are trading at a 6% cap, it's worth about $30,000 ÷ 0.06 = $500,000. This is how commercial real estate and larger multifamily (5+ units) are actually priced — appraisers and investors apply a market cap rate to the property's income. Small residential (1–4 units) is different: it's appraised by comparable sales, not the income approach, so there cap rate is a screening and comparison tool rather than the basis for the appraised value. Where the income approach applies, you can raise value by increasing NOI (higher rent or lower expenses), not just by waiting for the market. Set a target cap rate in the calculator to see the value any income stream supports.
Is a low cap rate always bad?
No. A low cap rate means a lower current yield, but it often signals a lower-risk, higher-demand market with stronger appreciation prospects and easier financing. Trophy assets in major metros routinely trade at sub-5% caps because buyers expect rent growth and price stability to make up for the thin current income. A high cap rate can mean a great deal — or a risky, hard-to-finance property in a declining area. Cap rate is a yield, not a grade, so always read it alongside the market and the property's quality.
Why can a low cap rate still be a good creative-finance deal?
Because cap rate ignores your terms. A creative-finance buyer often follows the maxim 'you name the price, I name the terms' — accepting a higher price, and therefore a lower cap rate, in exchange for a low or zero down payment, a below-market seller-carried interest rate, or a long balloon. On an all-cash, market-rate basis that deal looks overpriced, but the value lives in the financing, not the cap rate. A property at a 5% cap that the seller carries at 3% with little down can produce a far better cash-on-cash return than a 7% cap bought with an 8% bank loan. Read cap rate as the asset's unleveraged yield, then evaluate the terms separately — a terms-value or NPV view shows the deal the cap rate hides.
Why does cap rate use NOI instead of gross rent?
Because gross rent isn't what an owner keeps. Vacancy, taxes, insurance, management, repairs, and reserves all come out before any money reaches the bottom line, and those costs vary widely from property to property. Using net operating income — rent after vacancy and operating expenses — lets you compare two buildings fairly even if one has high taxes or heavy maintenance. Two properties with identical gross rents can have very different NOIs and therefore very different cap rates.
How accurate do my operating expense estimates need to be?
As accurate as you can make them — expenses have an outsized effect on the result. Cap rate is NOI ÷ price and value is NOI ÷ cap rate, so every dollar you misjudge in expenses flows straight through to the cap rate and the price the income supports. On a property with $30,000 of effective income, assuming a 30% expense ratio instead of 40% overstates NOI by $3,000 — which at a 6% cap overstates value by $50,000. Use the seller's actual operating statement, real tax bills, and insurance quotes wherever you can rather than rules of thumb, and treat an unusually low expense ratio as a flag to verify.
How does cap rate compare to the interest rate, and what is negative leverage?
Cap rate is the property's unleveraged yield; the interest rate is the cost of borrowing against it. When the cap rate is higher than your loan rate, borrowing amplifies your return — positive leverage. When the cap rate is lower than your loan rate, each borrowed dollar earns less than it costs, dragging your return below the cap rate — negative leverage. In high-rate environments many low-cap deals only pencil with a large down payment, creative terms, or the expectation of rent growth that lifts the cap rate over time.
Does seller financing change a property's cap rate?
No. Cap rate is unleveraged by definition — NOI divided by price — so how you finance the purchase doesn't move it. What financing changes is the spread between the cap rate and your loan's interest rate. Seller financing often comes with a below-market or even 0% rate, which widens that spread and can turn a thin-cap deal into strong positive leverage on a cash-on-cash basis, where a market-rate bank loan would leave you underwater. So when a seller carries the note, don't expect the cap rate to improve — instead compare the cap rate to the rate you negotiated, because that gap is where creative terms pay off.
How does cap rate affect refinancing out of a seller-financed purchase?
When you refinance out of a seller note, the appraised value — not the price you paid — drives how much cash you can pull out, and how that value is set depends on the property: commercial and 5+ unit multifamily are valued by the income approach (value = NOI ÷ market cap), while 1–4 unit residential is appraised on comparable sales. Either way, accepting a higher price in exchange for good terms — a low or zero seller rate, little down — can leave the appraised value below your purchase price, shrinking or eliminating the cash you can pull out and leaving you short at the balloon. Raise value the way that asset rewards (higher NOI for income property, or buy at a price the comps support for residential), and model the refinance itself — rate, LTV, timing, and cash-out — in a dedicated refi analysis. This calculator shows the value a given NOI and cap rate support, the starting point for income property.
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