Calculate capitalization rate and NOI for any rental property. Instant results with 2026 market benchmarks.
With the 10-year Treasury yielding ~4.5% in 2026, investors typically require a 1–2% risk premium over Treasuries, making 5.5–6.5% a reasonable minimum cap rate for stabilized residential rentals. Gateway city properties (NYC, SF, LA) continue trading at 3–4% caps due to appreciation expectations. Secondary Midwest and Sun Belt markets offer 6–9% cap rates, attracting cash-flow-focused investors.
The capitalization rate is the most widely used metric in commercial and investment real estate. It allows investors to compare properties of different sizes and prices on equal terms, and to estimate value based on income.
Cap Rate (%) = (Net Operating Income ÷ Property Value) × 100
NOI = Effective Gross Income − Operating Expenses
Effective Gross Income = Gross Rent × (1 − Vacancy Rate)
Property taxes
Typically 1–3% of value annually depending on state
Property insurance
Landlord policies typically $100–$200/month on a single-family home
Property management
8–12% of collected rent if using a manager
Maintenance and repairs
Budget 1% of property value annually
Capital expenditure reserves
1% of value for major systems replacement
Not included in NOI: mortgage principal, mortgage interest, depreciation, income taxes.
| Market Type | Typical Cap Rate | Examples |
|---|---|---|
| Tier 1 Gateway Cities | 3–4.5% | NYC, SF, LA, Boston |
| Major Metros | 4.5–6% | Chicago, Seattle, Denver, Miami |
| Sun Belt Growth Markets | 5.5–7% | Phoenix, Atlanta, Dallas, Charlotte |
| Secondary Midwest | 7–9% | Columbus, Indianapolis, Memphis, Cleveland |
| Rural / Tertiary Markets | 8–12% | Small cities, rural areas |
Cap rate is a powerful tool but has limitations: it doesn't account for appreciation, leverage, tax benefits (depreciation), or future rent growth. Always use cap rate alongside other metrics for a complete investment analysis.
Income:
Expenses:
Cap Rate Calculation:
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A "good" cap rate depends entirely on your market and risk tolerance. In 2026, with the 10-year Treasury yielding around 4.5%, investors typically demand a 1–2% spread, so 5.5–6.5% cap rates represent fair value in stable markets. Class A properties in gateway cities (NYC, SF, LA) often trade at 3–4% cap rates due to appreciation expectations. Class B/C properties in secondary markets may offer 7–9%. Higher cap rates indicate higher risk or better value — context matters. Consult a licensed real estate professional for current market cap rates in your target area.
Cap Rate = Net Operating Income (NOI) ÷ Property Value × 100. NOI is calculated as: Gross Annual Rent × (1 − Vacancy Rate) − Annual Operating Expenses. Operating expenses include property taxes, insurance, management fees, maintenance, and reserves — but NOT mortgage payments. Example: A property generating $24,000 NOI with a $400,000 value has a 6% cap rate ($24,000 ÷ $400,000 = 0.06 = 6%).
Yes — cap rate is widely used to estimate property value: Property Value = NOI ÷ Cap Rate. If similar properties sell at 6% cap rates and your property generates $30,000 NOI, its implied market value is $30,000 ÷ 0.06 = $500,000. This "income approach" to valuation is the primary method appraisers use for commercial and investment properties. For single-family homes, comparable sales (the "sales comparison approach") is more commonly used.
No — cap rate is calculated before any mortgage payments. This is intentional, as cap rate is a property metric that measures the asset's income potential independent of how it's financed. This allows fair comparison between all-cash and leveraged purchases, and between different investors with different financing terms. To evaluate leveraged returns, use cash-on-cash return instead.
Cap rate compression happens when property values rise faster than income, causing cap rates to fall. For example, if a $400,000 property generating 6% cap rate appreciates to $500,000 while rents stay flat, the cap rate compresses to 4.8%. Buyers who purchase at compressed cap rates accept lower current income in anticipation of future appreciation or rent growth. This creates risk if appreciation reverses without rent growth materializing.
Disclaimer: Cap rate calculations are estimates based on information you provide. Actual NOI depends on occupancy, rent collection, actual expenses, and market conditions. Cap rates vary by property type, condition, location, and financing environment. Past cap rates and appreciation do not guarantee future performance. Real estate investing involves risk of loss. This calculator is for educational purposes only and does not constitute investment advice. Consult licensed real estate, financial, and tax professionals before investing.