# 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.

- Calculator id: `cap-rate` · Category: Investing & Real Estate (`investing`) · Tool name: `calculate_cap_rate`
- Canonical page: https://tttkmbb.com/investing/cap-rate · This document: https://tttkmbb.com/investing/cap-rate.md · JSON definition: https://tttkmbb.com/investing/cap-rate.json

## Purpose

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.

**Use when:** 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.

## Input

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

## Output

| Field | 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. |

## 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.

## Data Sources

- Wikipedia – Capitalization rate — https://en.wikipedia.org/wiki/Capitalization_rate (reference, retrieved 2026-09-24)

Data freshness: `static`. Deterministic formula with fixed constants; results never go stale. Inputs supplied by the caller determine the output.

## API

- `GET https://tttkmbb.com/api/v1/calculate/cap-rate?property_price=…&annual_gross_income=…`
- `POST https://tttkmbb.com/api/v1/calculate/cap-rate` with JSON body `{"inputs": {…}}`
- Response: unified envelope (`success`, `request`, `result.values`, `result.units`, `sources`, `freshness`, `timestamp`, `next_actions`, `links`); see https://tttkmbb.com/docs/response-format.md
- Schema: https://tttkmbb.com/api/v1/calculators/cap-rate · OpenAPI operationId `calculate_cap_rate` in https://tttkmbb.com/openapi.json
- Authentication: none. Rate limit: fair use, see https://tttkmbb.com/docs/rate-limits.md.

## MCP

- Server: `https://tttkmbb.com/mcp` (Streamable HTTP, JSON-RPC 2.0, no auth)
- Tool:  `run_calculator` with `{"calculator_id": "cap-rate", "inputs": {…}}`

## Example

- 500,000 price, 30,000 gross income, no expenses: inputs `{"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: inputs `{"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
```

## Limitations

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. 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. All values are computed from the formula above; no measurement or live data is involved.

## 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

- [Cash-on-Cash Return Calculator](https://tttkmbb.com/investing/cash-on-cash-return.md) — Levered return on the cash invested.
- [Gross Rent Multiplier Calculator](https://tttkmbb.com/investing/gross-rent-multiplier.md) — Price-to-rent screening ratio.
- [Rental Yield Calculator](https://tttkmbb.com/investing/rental-yield.md) — Gross and net yield of a rental home.