Cap Rate Calculator
Cap rate estimates the annual return of a property before financing by dividing net operating income by property value. It is useful for comparing income-producing properties, but it does not include loan terms, cash invested, repairs, or future risk.
Estimates are based on your inputs and assumptions. DealSharp does not provide financial, investment, legal, tax, or lending advice.
Run the number, then pressure-test the assumptions.
Cap rate estimates the annual return of a property before financing by dividing net operating income by property value. It is useful for comparing income-producing properties, but it does not include loan terms, cash invested, repairs, or future risk.
Use this page to understand the metric directionally, then compare it against financing, reserves, repair risk, cash flow, and your own constraints.
Use this working calculator as a starting point, then run the full deal in DealSharp when you need more inputs, side-by-side scenarios, and risk context.
Cap rate = annual NOI / property value
If a property has $18,000 in annual NOI and costs $300,000, the cap rate is 6%.
Assumptions
Cap rate
Estimated outputs
Scenario snapshot
Scenario estimate based on the inputs shown here. Use the full DealSharp app to compare financing, repairs, vacancy, cash flow, and risk assumptions before deciding.
How to read this number
The useful move is not treating one number as a final answer. Use it to decide which assumptions deserve more review, then compare the result against cash flow, financing, reserves, repair risk, and your own constraints.
Inputs required
- Metric inputs shown in the formula or calculator.
- Income, expense, debt, value, and cash assumptions where relevant.
- Investor-provided numbers that should be checked against source documents.
Outputs explained
- Scenario estimate based on the inputs.
- Plain-English context for comparing the metric.
- Limitations and assumptions to review before relying on the result.
Assumptions to review
- Inputs are estimates supplied by the user.
- Market rent, lender terms, taxes, insurance, repairs, and legal details can change the result.
- DealSharp does not provide financial, investment, legal, lending, tax, or accounting advice.
What this tells you
- A higher cap rate can suggest more income relative to price before debt.
- A lower cap rate can reflect lower income, higher price, lower perceived risk, or a market where buyers accept thinner yields.
- Cap rate is best used beside DSCR, cash flow, cash-on-cash return, and repair assumptions.
What this does not tell you
- Cap rate does not show your mortgage payment or cash invested.
- It does not account for future rent growth, tax changes, major repairs, or resale assumptions.
Common mistakes
- Using gross rent instead of NOI.
- Leaving out realistic operating expenses.
- Comparing cap rates across different markets or property types without context.
FAQ
Does cap rate include mortgage payments?
No. Cap rate is usually calculated before financing, using NOI and property value.
Is a higher cap rate always better?
Not always. Higher cap rate can also reflect higher risk, weaker location, more repairs, or less stable income.
Run the full deal before deciding
This page helps with one metric or workflow. DealSharp is built for full real estate deal analysis: assumptions, financing, cash flow, repair scenarios, DSCR, cap rate, and risk flags based on your inputs.
Open DealSharpDisclaimer
DealSharp provides calculation and scenario-modeling tools for informational purposes only. Outputs are estimates based on your inputs and assumptions. DealSharp does not provide financial, investment, legal, lending, tax, or accounting advice. Verify important decisions with qualified professionals.