Calculator guide
Cap Rate Calculator
Cap rate measures how a property performs on its own — before any loan is involved. That makes it a useful way to compare properties regardless of how they're financed.
What the metric means
Cap rate measures how a property performs on its own — before any loan is involved. That makes it a useful way to compare properties regardless of how they're financed.
Formula
Where:
- Annual NOI
- Net operating income — gross rent × (1 − vacancy) minus all operating expenses, excluding the mortgage
- Purchase Price
- Total acquisition cost of the property
Example:
- Annual NOI = $18,000
- Purchase Price = $300,000
- Step 1: Cap Rate = 18,000 ÷ 300,000
- Step 2: Cap Rate = 0.060 = 6.0%
A 6% cap rate means the property generates $6 of income per $100 of value, before any financing costs.
How DealPrism uses it
DealPrism uses cap rate as an estimated unlevered yield metric alongside cash flow and DSCR so users can separate property performance from loan structure.
Common mistakes
- Treating cap rate as a financing metric.
- Comparing cap rates without validating the NOI assumptions.
- Assuming a higher cap rate always means a better investment.
Related FAQs
Analyze your own deal
See this metric in context with your purchase price, rent, expenses, and financing assumptions.
Analyze your own dealDealPrism provides educational analysis based on available data and user assumptions. Results are estimates and may change if rent, taxes, insurance, financing, or other inputs are updated. This content is not financial, legal, tax, or investment advice.