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Finance formula

How to calculate cap rate

Cap rate estimates a property's income return before financing and taxes.

See the formulaOpen calculator
Direct answer
Formula
Cap rate = NOI / property value * 100

Use the table below to match each symbol with the right input. Keep units consistent before you start.

Cap rate formula
Start here when you only need the equation and variable names.
Formula
Cap rate = NOI / property value * 100

Cap rate estimates a property's income return before financing and taxes.

Variable meanings
Check each symbol, meaning, and unit before you calculate.
SymbolNameDescriptionUnit
NOINet operating incomeAnnual income after operating expenses.currency per year
property valueProperty valueCurrent value or purchase price.currency
When to use this formula
Check that your situation matches the formula before you trust the result.
  • Compare income properties with it before debt payments, income tax, and appreciation assumptions.
Step-by-step method
Follow these steps when you are solving it by hand.
  1. 1Calculate annual net operating income.
  2. 2Use current market value or purchase price for the property.
  3. 3Divide NOI by property value.
  4. 4Multiply by 100 to express the result as a percent.
Examples
These sample numbers show the order of operations and units.
Apartment building
NOI
$54,000
property value
$900,000
  1. 1.Cap rate = 54000 / 900000 * 100
  2. 2.Cap rate = 0.06 * 100
  3. 3.Cap rate = 6%
Result
The cap rate is 6%.
Small rental property
NOI
$31,200
property value
$520,000
  1. 1.Cap rate = 31200 / 520000 * 100
  2. 2.Cap rate = 0.06 * 100
  3. 3.Cap rate = 6%
Result
The cap rate is 6%.
Mistakes to avoid
Small input or unit errors can change the answer a lot.
  • Using an annual rate where the cap rate formula needs a monthly or period rate.
  • Entering 8 instead of 0.08 when the formula calls for a decimal rate.
  • Comparing results across different time periods without converting them first.
  • Rounding each step instead of rounding the final answer.
Open the Cap Rate Calculator
Open the calculator for the answer without rewriting the formula.

Enter your values in the related calculator, then compare the output with the hand method above.

Open Cap Rate Calculator
FAQs
Short answers for common formula questions.
Can I calculate Cap rate by hand?

Yes. Write the units next to each value, convert rates or measurements first, and round only the final answer.

Why does my Cap rate result differ from another calculator?

Most differences come from rounding, unit conversions, rate timing, or a slightly different version of the formula.

When is the Cap Rate Calculator better than hand math?

Open the Cap Rate Calculator to check several scenarios or skip the hand arithmetic.