Cap Rate = Net Operating Income (NOI) ÷ Purchase Price
FAQ
What's a good cap rate?
It depends on the market. Slower-growth, lower-risk metros often trade at 4–6% cap rates; higher-yield or higher-risk markets can run 8–12%+. Compare a property's cap rate against similar properties in the same submarket, not a universal benchmark.
Does cap rate account for my mortgage?
No — cap rate is calculated as if the property were bought in cash. It measures the property's own performance, not your financed return. Use cash-on-cash return to factor in your loan.
What counts as an operating expense?
Property taxes, insurance, property management, repairs and maintenance, and a vacancy/CapEx reserve. It excludes mortgage principal and interest, and excludes income tax.
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