Home › Investing & Real Estate › Cap Rate Calculator

Cap Rate Calculator

Computes a property's net operating income from gross income, vacancy and operating expenses, and divides it by the price to get the capitalization rate, alongside the gross yield.

When to use

You want to compare income properties on unlevered return, or turn an asking price and rent roll into a cap rate.

Do not use when: You want the return on the cash actually invested after mortgage payments (use cash-on-cash-return) or a quick price-to-rent screen (use gross-rent-multiplier). Informational only; not financial advice.

Formula

effective_gross_income = annual_gross_income × (1 − vacancy_percent/100); NOI = effective_gross_income − annual_operating_expenses; cap_rate_percent = NOI / property_price × 100; gross_yield_percent = annual_gross_income / property_price × 100

Direct capitalization: NOI excludes financing costs, income taxes, depreciation and capital expenditures, so the cap rate is an unlevered, before-tax yield on the price. Informational mathematics only; not financial advice.

Inputs

Parameter	Type	Unit	Required	Description
`property_price`	number		yes	Purchase price or current market value. Range: > 0, ≤ 1000000000000
`annual_gross_income`	number		yes	Potential annual rent and other income at full occupancy. Range: ≥ 0, ≤ 1000000000000
`annual_operating_expenses`	number		default 0	Taxes, insurance, maintenance, management and utilities paid by the owner (no mortgage payments or depreciation). Range: ≥ 0, ≤ 1000000000000
`vacancy_percent`	number	%	default 0	Share of gross income lost to vacancy and unpaid rent. Range: ≥ 0, ≤ 100

Outputs

Output	Type	Unit	Description
`effective_gross_income`	number		annual_gross_income × (1 − vacancy_percent/100).
`net_operating_income`	number		effective_gross_income − annual_operating_expenses.
`cap_rate_percent`	number	%	net_operating_income / property_price × 100.
`gross_yield_percent`	number	%	annual_gross_income / property_price × 100.

Example

500,000 price, 30,000 gross income, no expenses: {"property_price":500000,"annual_gross_income":30000} → {"effective_gross_income":30000,"net_operating_income":30000,"cap_rate_percent":6,"gross_yield_percent":6}

1.5 M price, 120,000 gross, 40,000 expenses, 5 % vacancy: {"property_price":1500000,"annual_gross_income":120000,"annual_operating_expenses":40000,"vacancy_percent":5} → {"effective_gross_income":114000,"net_operating_income":74000,"cap_rate_percent":4.93,"gross_yield_percent":8}

GET https://tttkmbb.com/api/v1/calculate/cap-rate?property_price=500000&annual_gross_income=30000

Machine access

API: GET https://tttkmbb.com/api/v1/calculate/cap-rate (query parameters) or POST with a JSON body {"inputs": {...}}
Schema: https://tttkmbb.com/api/v1/calculators/cap-rate · Markdown: https://tttkmbb.com/investing/cap-rate.md · JSON definition: https://tttkmbb.com/investing/cap-rate.json
MCP: server https://tttkmbb.com/mcp, tool run_calculator with calculator_id="cap-rate"
OpenAPI operationId: calculate_cap_rate
Freshness: static. Authentication: none. Rate limit: fair use (see rate limits).

Sources

Wikipedia – Capitalization rate (reference)

FAQ

Is a higher cap rate better?

It means more income per unit of price, which usually reflects higher perceived risk or lower growth prospects; comparable properties in the same market typically trade in a narrow cap-rate band.

Do mortgage payments count as operating expenses?

No. NOI is measured before financing so that properties can be compared regardless of how they are funded; use cash-on-cash-return to include debt service.

Related calculators

Cash-on-Cash Return Calculator — Levered return on the cash invested.
Gross Rent Multiplier Calculator — Price-to-rent screening ratio.
Rental Yield Calculator — Gross and net yield of a rental home.