Calculate property cap rate from NOI and market value

It provides a fast, consistent way to compare the unlevered operating return of rental properties without mixing mortgage terms, income taxes, or expected appreciation into the calculation. Enter NOI and market value in the same currency; because the units cancel, the resulting cap rate is comparable across currencies and property prices. The calculator also accepts negative NOI, which correctly produces a negative rate for a property operating at a loss.

What a property cap rate measures

A capitalization rate, usually shortened to cap rate, describes a property's annual net operating income as a share of its current market value. The formula is net operating income divided by market value, multiplied by 100 to display a percentage. For example, a property producing 72,000 in annual NOI and valued at 900,000 has an 8 percent cap rate. This measure focuses on the asset's operating performance before financing. It does not include mortgage principal, mortgage interest, income tax, depreciation, or an assumed future sale price. That makes it useful for an initial comparison between properties that might otherwise have different loan structures or owners. A cap rate is not the same as a complete investment return, however. Two properties with identical rates can have very different repair risks, tenant stability, lease terms, locations, and growth prospects. Treat the result as a compact screening metric and a starting point for deeper underwriting, not as a standalone verdict about whether a property is a good investment.

Choose consistent NOI and market value inputs

Use annual net operating income for the same property represented by the market value. NOI normally starts with recurring property revenue and subtracts ordinary operating expenses such as management, maintenance, insurance, property taxes, utilities paid by the owner, and a reasonable vacancy allowance. It generally excludes debt service, capital expenditures, depreciation, and the owner's income taxes. Consistency matters more than the currency: NOI and market value may be entered in dollars, euros, pounds, or another currency as long as both amounts use that same currency. Market value should reflect the property's current value or the acquisition price being evaluated, and it must be greater than zero. If you compare listings, apply the same NOI definition to every candidate. Seller projections may use optimistic occupancy or omit reserves, so normalize those assumptions before comparing rates. A negative NOI is accepted because it represents a real operating loss and should produce a negative cap rate rather than an input error. Zero NOI produces a zero percent rate.

Interpret the percentage in context

A higher cap rate means more current operating income per unit of property value, but it can also reflect greater perceived risk, weaker expected growth, deferred maintenance, or a less competitive location. A lower rate can accompany stronger tenant demand, newer construction, longer leases, or expectations of rent and value growth. There is no universal good cap rate. Useful comparisons involve similar property types, conditions, lease structures, and markets at roughly the same time. After calculating the rate, test how it changes under realistic scenarios: lower occupancy, higher insurance, property-tax reassessment, management fees, or near-term repairs. Also compare the result with financing costs and alternative investments, while remembering that cap rate itself is unlevered and does not model a loan. This calculator returns both the decimal ratio and its percentage form so downstream systems can use either representation. The API price is $0.002 per request, and the same deterministic calculation can be run in the browser for quick manual checks.