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Cap Rate & NOI Calculator
Calculate net operating income and cap rate for any rental property — with a full expense waterfall and market benchmark table.
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NOI & Cap Rate
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All units, 12 months
Typical: 5–8%
% of EGI
Optional
% of gross rent
% of gross rent
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Results
Cap Rate
7–9% — strong cash flow
- Income
- Gross scheduled income
- $36,000
- Less vacancy loss
- ($1,800)
- Effective gross income
- $34,200
- Operating expenses
- Property tax
- $3,600
- Insurance
- $1,200
- Management
- $2,736
- Maintenance
- $1,800
- CapEx reserve
- $1,800
- Total operating expenses
- $11,136
- Net operating income
- NOI
- $23,064
- Cap Rate
- 7.69%
Cap Rate = NOI ÷ Purchase Price. NOI excludes mortgage payments — it is a property-level metric, independent of financing. Use it to compare properties on equal footing; use cash-on-cash to evaluate levered returns.
Cap rate benchmarks by market type
| Cap rate range | Market type | Investor profile |
|---|---|---|
| 3–4% | Gateway cities (NYC, LA, SF) | Appreciation-driven; high entry price |
| 4–6% | Primary metros (Atlanta, Phoenix, Denver) | Balanced — appreciation + moderate cash flow |
| 6–8% | Secondary / tertiary markets (Cleveland, Memphis) | Cash-flow-focused; lower appreciation |
| 8%+ | Rural or high-vacancy markets | High yield — verify vacancy and exit assumptions |
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What is cap rate and how is it calculated?
Cap rate — short for capitalization rate — is the most widely used metric for comparing rental property values. It answers the question: if I paid all cash, what annual yield would this property produce?
Cap Rate = NOI ÷ Purchase Price × 100
NOI (net operating income) is what remains from gross rent after deducting vacancy losses and all operating expenses — but before any mortgage payment. It's a property-level metric, independent of how the deal is financed.
The NOI calculation step by step
Starting with gross scheduled income (annual market rent), we work down:
- Gross scheduled income (GSI) — total rent if 100% occupied
- Less: vacancy loss — GSI × vacancy %
- = Effective gross income (EGI)
- Less: operating expenses — property tax, insurance, HOA, management, maintenance, CapEx, utilities
- = Net operating income (NOI)
Divide NOI by purchase price to get cap rate. Note what's not in operating expenses: mortgage P&I, depreciation, income taxes, and capital improvements. These belong in your cash flow model, not NOI.
Worked example — Memphis SFR
A 3-bedroom SFR in Memphis, TN. Purchase price $185,000. Gross annual rent $18,600 ($1,550/mo). Vacancy 7%, management 9%, property tax $1,500/yr, insurance $900/yr, no HOA, maintenance 5%, CapEx 5%, no utilities.
GSI: $18,600 → Vacancy loss ($1,302) → EGI: $17,298 → Management ($1,557) → Tax ($1,500) → Insurance ($900) → Maintenance ($930) → CapEx ($930) → NOI: $11,481. Cap rate: $11,481 ÷ $185,000 = 6.2%. Strong for a secondary market SFR.
Cap rates by market type
Cap rates vary enormously by geography. What looks low in Cleveland looks normal in Los Angeles because buyers are pricing in appreciation potential, not just current yield.
| Market type | Typical cap rate | Investor thesis |
|---|---|---|
| Gateway coastal (NYC, LA, SF, Miami) | 3–4% | Appreciation-driven; strong long-term demand |
| Primary growth metros (Atlanta, Phoenix, Nashville) | 4–6% | Balanced appreciation + moderate cash flow |
| Secondary markets (Columbus, Memphis, Indy) | 6–8% | Cash-flow focused; lower appreciation expectations |
| Rural / high-vacancy tertiary | 8–12% | High nominal yield; verify exit cap and vacancy risk |
Cap rate vs DSCR — what each metric tells you
These two metrics often get conflated but measure completely different things:
- Cap rate is the lender-agnostic, financing-independent yield. It tells you what the asset earns, full stop. Used for comparing properties and markets.
- DSCR is a financing-dependent qualifier. It tells the lender whether this specific loan is covered by this specific rent. It changes with every rate, term, and loan amount scenario.
A deal can have a 7% cap rate and still have a DSCR below 1.0 if the loan is large and rates are high. Conversely, a deal with a 4% cap rate might DSCR above 1.25 if purchased with substantial equity. Run both metrics — cap rate for property selection, DSCR for financing qualification.
The three most-underestimated expense categories
- CapEx reserves. New investors often skip this. CapEx (capital expenditure) covers major replacement items: roof, HVAC, water heater, windows, electrical. On a 15-year-old SFR, budgeting 5% of gross rent per year is conservative — some analysts use $100–150/door/month for older properties. Skipping CapEx reserves produces misleadingly high NOI and cap rates.
- Actual property management cost. If you're self-managing, plug in the market rate anyway — it represents your time, and you may hire a manager later. Management on SFR runs 8–10% of gross rent. On multifamily with on-site staff, it can run 5–7% with addtional payroll costs separate.
- HOA dues on condos. A $400/mo HOA on a Miami condo is $4,800/yr operating expense. Many new investors forget this because it's not a lender-facing number in the same way taxes and insurance are. It hits your cap rate hard.
From cap rate to financing
- Run the DSCR Calculator to see how financing changes your coverage ratio
- Use the Cash-on-Cash Calculator to measure levered return on your down payment
- Compare your deal to the market with our lender comparison table
Frequently asked questions
What is cap rate and why does it matter for DSCR loans?
Cap rate (capitalization rate) = NOI ÷ purchase price. It's the property's unleveraged yield — what you'd earn if you paid all cash. It's used to compare properties across markets and property types on equal footing, independent of financing. DSCR lenders don't underwrite to cap rate, but a strong cap rate (6%+) usually signals a healthy DSCR, since both metrics depend on the same NOI numerator.
What's the difference between NOI and cash flow?
NOI (net operating income) = effective gross income minus all operating expenses, before debt service. Cash flow = NOI minus your mortgage payment (P&I). NOI is a property-level metric — it doesn't change based on financing. Cash flow is your personal return and changes with every loan scenario. A property can have strong NOI and weak cash flow if highly leveraged.
Should I include mortgage payments in the NOI calculation?
No. By definition, NOI excludes debt service. Mortgage principal and interest are financing costs, not operating expenses. Including them would make the metric financing-dependent and unusable for property comparisons. Use the Cash-on-Cash Calculator to factor in your actual P&I payment.
What vacancy rate should I use?
Industry standard long-term residential vacancy is 5–8% for stable markets. Use 10% for college towns, high-turnover urban areas, or markets with seasonal softness. For STR properties, effective vacancy is harder to model and should be derived from AirDNA or actual revenue data. Never use 0% vacancy — even the best properties turn over.
How do I estimate the maintenance and CapEx percentages?
A common heuristic: maintenance = 5% of gross rent (repairs, HVAC service, appliances), CapEx = 5% of gross rent (roof, HVAC replacement, plumbing, structural). Total 10%. On older properties (built pre-1990), many investors use 8–10% for CapEx. On new construction, some use 3–4% for CapEx. The 5%/5% default is a conservative mid-point for a 10–20 year old SFR.
What cap rate should I target?
There is no universal target — it depends on your market and strategy. In gateway coastal cities (NYC, LA, Miami), cap rates of 3–5% are normal because investors are buying appreciation. In secondary markets (Memphis, Columbus, Kansas City), 6–8% is typical for cash-flow-focused investors. Above 8% can be exceptional or a sign of elevated risk — check vacancy trends and local fundamentals.
Does cap rate account for property appreciation?
No. Cap rate is a point-in-time yield metric based on current NOI and current price. It doesn't model future rent growth, appreciation, or exit value. For a full return picture, use IRR (internal rate of return) which models cash flows plus appreciation over your hold period. Cap rate is best used for current-year apples-to-apples property comparison.
What's a good NOI for qualifying for a DSCR loan?
DSCR lenders don't directly underwrite to NOI — they use gross rent ÷ PITIA. But a higher NOI (from lower expenses) often correlates with a higher DSCR. As a rule of thumb: if NOI ÷ 12 is comfortably above your expected monthly PITIA, you likely have a healthy DSCR. Use our DSCR Calculator to get the exact ratio the lender will see.