Cap Rate Calculator: NOI, Yield and Implied Value

Capitalization rate is net operating income divided by property value or purchase price. NOI excludes financing and income taxes, so cap rate measures the unlevered yield of the asset itself — it lets you compare two properties regardless of how each one is financed.

It is market-specific. Stabilized single-family and small multifamily rentals in the Southeast and Midwest markets we lend in commonly trade in the 5%–8% band, while higher-cost coastal metros trade lower because buyers are paying for appreciation and liquidity. A cap rate is only meaningful against comparable sales in the same submarket and asset class.

No. Cap rate deliberately excludes debt service. If you want a levered return figure, use cash-on-cash return, which divides annual pre-tax cash flow after the loan payment by the cash you invested.

NOI = gross scheduled rent and other income, minus vacancy loss, minus operating expenses (property taxes, insurance, management, maintenance and reserves, HOA, utilities you pay, and turnover). Mortgage principal and interest, depreciation, and capital improvements are excluded from NOI.

If you know the NOI and the market cap rate, value = NOI ÷ cap rate. Investors use this to price small multifamily and to test whether a listed price is supported by income. This calculator shows the implied value at your target cap rate next to the price you entered.

Cap rates and prices move inversely when NOI is held constant — as buyers accept lower cap rates, they are paying more per dollar of income, and as cap rates rise, values compress. Watching cap rate trends in a submarket over several quarters can signal whether pricing is expanding or contracting relative to rents.

The cap rate spread is the gap between the property's cap rate and current borrowing costs; a wider positive spread generally means leverage adds to your cash-on-cash return, while a negative spread means debt drags on it. Investors evaluating a DSCR purchase often check this spread before deciding how much leverage to use.

Deferred maintenance does not change the formula, but buyers typically underwrite a higher cap rate on properties needing near-term capital work to compensate for the added cost and risk, which effectively lowers the price they will pay for the same NOI. Sellers who address major deferred items before listing often support a lower, more favorable cap rate.

Compare cap rates only within similar asset classes and property conditions, since a 6% cap rate in one metro may reflect different risk and growth assumptions than a 6% cap rate elsewhere. Pair the cap rate with rent growth trends, vacancy rates, and property tax trajectories in each market for a fuller comparison.

Cap rate measures unlevered yield on the purchase price, while DSCR measures whether in-place or projected rent covers the proposed loan payment. A property can have an attractive cap rate but still fail a DSCR loan's minimum ratio if the purchase price and financing terms push the payment too high relative to rent.

Use in-place, actual trailing rent and expenses for the most defensible cap rate at acquisition, and calculate a separate pro-forma cap rate using market rent as a forward-looking scenario. Lenders and appraisers generally weight actual trailing income more heavily than optimistic pro-forma projections.

Small multifamily properties often trade at higher cap rates than comparable single-family rentals because they carry more operating complexity, higher turnover exposure, and a smaller buyer pool of qualified investors. This calculator's inputs work for either property type as long as your income and expense figures reflect the specific asset.