Understanding Cap Rate
How we calculate. Cap rate % = net operating income ÷ property value × 100. See our methodology and accuracy policy .
Real-world scenario: A typical Cap Rate case uses annual noi 48000 and property value 800000. Enter the same figures below to reproduce the worked path.
What is Cap Rate?
A core income-property valuation metric. Cap rate ignores financing—compare unlevered income yields.
- NOI = income − operating expenses (before debt service)
- Value is purchase price or market value
- Higher cap often means higher yield/risk—context matters
The Formula
Worked Example
Common Use Cases
- Deal screening: income yield check
- Broker comps: market cap bands
- Portfolio reviews: asset mix
Pro Tips
- Use trailing or forward NOI consistently
- Don’t mix gross rent with NOI
- Compare same asset class/location
| Scenario | When to use |
|---|---|
| Percent of a number | Finding a part of a whole (tax, tip, score) |
| Percent change | Comparing old vs new values |
Limitations: Cap Rate results are educational real-estate planning aids—not appraisals, loan offers, or investment advice. Confirm figures with qualified professionals and your lender.
Common mistakes
- Swapping part and whole: The denominator must be the full total, not a subset.
- Rounding too early: Carry extra decimal places through multi-step work before rounding the final percent.
- Mixing percent and decimal forms: Enter rates in the format the calculator labels expect.
The worked example for cap rate was verified with the calculator form on this page—enter the same values to confirm the result.
When to use this calculator
- Use this page when your wording matches cap rate and the form labels on screen.
- Use percent of a number for “what is X% of Y?” problems.
- Use number is what percent when you know part and whole and need the percent.
Still unsure about cap rate? Start with the quick answer above, then open the linked calculator that matches your wording.
❓ Frequently Asked Questions
How do I use this cap rate calculator?
For cap rate (percentage calculator), enter the values labeled on the form, then press Calculate. Compare the result to the worked example on this page.
What formula does this page use?
See the quick answer and formula box above for cap rate—the same percentage calculator expression is applied to your inputs.
What if my result looks wrong?
When checking cap rate, re-check part vs whole (or rate vs base), rounding, and whether percents were entered as 25 rather than 0.25 when the form expects percents.
Authoritative References
For real estate investing concepts, consult:
- National Association of Realtors — market and practice context
- Investopedia — Cap rate — capitalization rate basics
- CFPB — homebuying and closing education