Cap Rate Formula
The Capitalization Rate, or Cap Rate, is a fundamental metric used in real estate to estimate the potential rate of return on an investment property and compare different opportunities.
Formula
Copy the exact expression or work through it step by step below.
Cap Rate = Net Operating Income / Property Value x 100 Variables
CR
Cap Rate
The cap rate assumption used in the cap rate calculation.
NOI
Net Operating Income
The incoming amount used to size the cap rate outcome.
PV
Property Value
The property value value plugged into the cap rate calculation.
Step By Step
- 1
Set the baseline case with the real calculator inputs.
Property Value = $300,000, Gross Rental Income = $36,000, Vacancy Pct = 5.00%, Operating Expenses = 12,000
- 2
Translate rates, periods, and cash values onto the same footing before combining them.
Keep the cap rate assumptions consistent instead of mixing monthly and annual views.
- 3
Apply the formula and read the first calculator outputs, not just the headline assumption.
The calculator lands with noi at 22,200 and cap rate at 7.40%.
- 4
Run one changed scenario so the formula is stress-tested before it is trusted.
The cap rate calculator page is the fastest way to compare that second case.
Worked Example
Cap Rate sample case
Property Value
$300,000
Gross Rental Income
$36,000
Vacancy Pct
5.00%
Operating Expenses
12,000
Cap Rate = Net Operating Income / Property Value x 100 using property value $300,000, gross rental income $36,000, vacancy pct 5.00%, operating expenses 12,000.
The calculator lands with noi at 22,200 and cap rate at 7.40%.
Common Variations
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Sources & References
- Capitalization Rate (Cap Rate) — Investopedia
- What Is a Capitalization Rate (Cap Rate)? — Corporate Finance Institute (CFI)
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