Deal Metrics

What is cap rate?

Understand cap rate as an estimated property-level yield before financing is layered in.

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Answer

Cap rate measures how strong a property is without looking at financing.

Formula: Cap Rate = Annual NOI ÷ Purchase Price

Example: Monthly NOI = $1,250 Annual NOI = $15,000 Purchase price = $220,000 Cap rate = $15,000 ÷ $220,000 = 6.8%

Why this matters: Cap rate helps compare properties on their own income vs price, before loans change the picture.

Related guides

Read the cap rate calculator guideSee how DealPrism explains cash flow

Related questions

What is DSCR (Debt Service Coverage Ratio)?What is NOI (Net Operating Income)?What is cash-on-cash return?What is LTV (Loan-to-Value)?

See how this plays out on a real deal

DealPrism helps you connect the concept to live property assumptions, scenario changes, and calculated outputs.

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DealPrism 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.