What is cap rate in real estate investing?

Cap rate (capitalization rate) = NOI (Net Operating Income) ÷ Property Value. It measures the annual return on a real estate investment, ignoring financing costs. Example: $30,000 NOI ÷ $500,000 value = 6% cap rate. Higher cap rate = higher risk/return. Lower cap rate = lower risk/stabilized income.

What is a good cap rate for rental property?

National average cap rate is approximately 5.48%. Good ranges by property type: Multifamily (4.5–6.5%), Single-family (5–7%), Industrial (5–7%), Office (6–8%), Retail (6–9%). Markets with high appreciation typically have lower cap rates (3–5%), while secondary/tertiary markets run higher (7–10%). A cap rate that seems too high (10%+) often signals hidden risk: high vacancy, deferred maintenance, or difficult tenant mix.

What is the difference between cap rate and cash-on-cash return?

Cap rate ignores financing — it assumes all-cash purchase and measures return on the full property value. Cash-on-cash (CoC) return measures annual pre-tax cash flow relative to the actual cash invested (down payment + closing costs). CoC accounts for leverage: a 10% down payment on a 6% cap rate property might produce 20%+ CoC return. Always use both metrics: cap rate for market comparisons, CoC for deal-specific analysis.

How do I calculate cap rate on a rental property?

Cap Rate = (Net Operating Income ÷ Current Market Value) × 100. Step 1: Calculate Gross Rental Income (annual rent × 12). Step 2: Subtract Vacancy & Credit Loss (typically 5–8%). Step 3: Subtract Operating Expenses: property tax, insurance, property management (8–12% of rent), maintenance reserve (1% of value), HOA, utilities. Step 4: NOI = Gross Income − Vacancy − Operating Expenses. Step 5: Cap Rate = NOI ÷ Property Value. Do NOT include mortgage payments in NOI — cap rate is a pre-financing metric.

When should I NOT use cap rate to evaluate a property?

Do not rely on cap rate alone when: (1) Property has high vacancy or irregular income, (2) You are using creative financing (BRRRR, seller financing) where leverage dramatically changes returns, (3) Comparing properties of different ages (older properties have higher cap rates but bigger maintenance costs), (4) Markets with rapidly appreciating values — a low cap rate property in a hot market may outperform a high cap rate property in a declining market, (5) Properties with significant value-add potential where stabilized NOI is not yet achieved.

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Cap Rate Calculator

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The capitalization rate divides a property's annual net operating income by its purchase price, showing the property's yield independent of financing.

Cap rate = NOI ÷ property value. Enter your annual net operating income and purchase price to calculate cap rate instantly — then compare against RealEstateStackHub's benchmark data across 69 US metro markets. National average: 5.48% cap rate.

Cap Rate Calculator

Cap Rate = Net Operating Income ÷ Property Value

Annual Gross Income ($)

Vacancy Rate (%)

Annual Operating Expenses ($)

Property Value ($)

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Data: ESTIMATE SEEK EXPERT ADVICE LAST UPDATED Apr 2026

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Financial estimates only — not professional advice. Results are calculated projections based on your inputs. Cap rate is a calculated estimate based on your inputs. Actual cap rate depends on market rents, full expense analysis, and property-specific conditions. Consult a licensed appraiser or broker before buying or selling. Real estate investments involve risk. Consult a licensed financial advisor, CPA, or real estate attorney before making investment decisions. Full disclaimer →

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Community Insights

Based on 2,847 calculations

Updated May 26, 2026

7.2%

Avg cap rate

$14,200/yr

Avg NOI

58% of deals

Above 6% threshold

Anonymized data from RealEstateStackHub users. Updated daily.

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Features

✓NOI calculation
✓Property value input
✓Market comparison
✓Printable report

📖 Want to go deeper? Read our complete guide on Understanding Cap Rates → — benchmarks by market, cap rate vs. CoC, interest rate effects, and when to use (and not use) cap rate.

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