Calculate capitalization rate for real estate investments from net operating income and property value with comparison analysis.
This calculator divides a property's annual net operating income (NOI) by its current value or purchase price, then multiplies by 100 to express capitalization rate as a percentage. Enter a second property's NOI and value to see both cap rates side by side with the difference in percentage points. The mistake people make most often is feeding in gross rental income instead of NOI, or including mortgage payments in the expense deductions - cap rate is an unlevered figure and should never reflect financing costs.
A concrete input and expected output from the current implementation.
Input
Property A: NOI $37,500, Property Value $500,000. Property B: NOI $42,250, Property Value $650,000.
Expected output
Property A cap rate: 7.50%. Property B cap rate: 6.50%. Property A is higher by 1.00 percentage point.
Each cap rate is NOI divided by property value times 100: 37,500/500,000 = 7.5%, and 42,250/650,000 = 6.5%.
The calculator applies Cap Rate = (Net Operating Income / Current Property Value) x 100 to each property entered. NOI is meant to be annual income after operating expenses (taxes, insurance, maintenance, management fees) but before debt service and income taxes, so the result reflects the property's return independent of how it is financed.
When a second property's NOI and value are entered, the tool computes both cap rates independently and reports the gap between them in percentage points, not as a percentage difference. This lets you rank two listings or a target property against a comparable sale without a separate subtraction step.
No. Cap rate is calculated on an unlevered basis, meaning it deliberately excludes mortgage interest and principal. If you want a return figure that reflects financing, you need a cash-on-cash return or levered IRR calculation instead, which this tool does not produce.
Most often this is because the NOI used differs - listing agents sometimes use pro forma (projected) NOI or omit vacancy and management costs. Recalculate using your own trailing-twelve-month NOI and compare that figure instead of assuming the listed cap rate matches your inputs.
The example and behavioral notes were checked against the browser implementation. Standards and primary references below define the relevant format, formula, or platform behavior.
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