Interactive real estate analysis
Cap Rate and Rental ROI Calculator
Compare NOI, cap rate, cash-on-cash return and rental performance.
What cap rate measures
Cap rate compares annual net operating income with the property’s price or value before financing. Cash-on-cash return instead compares cash flow after debt service with your cash investment. Total return can also include principal paydown and appreciation; those components are not the same as spendable income.
How to Use This Calculator
- Enter price, closing costs and initial repairs.
- Use supported rent, other income, vacancy and itemized operating expenses.
- Set financing and compare the all-cash and financed results.
- Check whether reserves are included in the displayed NOI or deducted separately.
Run Your Numbers
Enter your assumptions below. The calculator provides educational estimates; confirm inputs for your property and financing.
If the calculator does not load, open the calculator in a new tab.
Understand the numbers
Formulas and Assumptions
This guide explains the core calculation methods. The widget’s detailed assumptions and schedules govern its displayed results.
- Effective gross income = scheduled rent − vacancy loss + other income
- NOI = effective gross income − operating expenses
- Cap rate (%) = annual NOI ÷ purchase price × 100
- Cash-on-cash return (%) = annual pre-tax cash flow ÷ cash invested × 100
- Gross rent multiplier = price ÷ annual gross rent
How to Interpret the Results
NOI excludes debt service, income tax and depreciation. Cash flow includes debt service; capital reserves may also reduce distributable cash. Cash invested includes the down payment, cash closing costs and cash-funded improvements. A zero denominator makes a ratio undefined.
Use consistent time periods and enter percentages in the format requested by each field. Test conservative assumptions as well as your expected case. Estimates are not a lending commitment or individualized financial, legal or tax advice.
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Detailed Methodology and Model Assumptions
Cap Rate, Cash-on-Cash and Total Return
Cap rate describes income relative to the whole purchase price. Cash-on-cash describes the cash left after financing relative to your own cash contribution. Year-one total return adds principal reduction and assumed appreciation. A property can score well on one measure and poorly on another.
Depreciation is a separate tax calculation. It does not belong in operating expenses for the cash-flow estimate. Use the rental-depreciation page for a deduction estimate and the DSCR page to evaluate lender coverage.
Complete Return Formulas
Cash invested = down payment + closing costs + initial repairs. Monthly cash flow = monthly NOI − principal and interest. Annual cash-on-cash (%) = monthly cash flow × 12 ÷ cash invested × 100.
Year-one total return (%) = (annual cash flow + year-one principal repaid + price × appreciation rate) ÷ cash invested × 100. Principal repaid comes from amortization. Appreciation is an assumption, not realized cash, and selling costs are not deducted by this simplified return measure.
Expense Methodology
Vacancy allowance = (scheduled rent + other income) × vacancy rate. Maintenance and management allowances are calculated on scheduled rent. Monthly NOI subtracts vacancy, tax, insurance, maintenance/CapEx, management and association costs. Annual NOI is monthly NOI × 12.
This widget combines maintenance and capital reserves in one allowance. Many market cap-rate reports put replacement reserves below NOI. Align definitions before comparing this result with a sales brochure, appraisal or lender analysis.
Price the Property Backward
Indicated price at target cap = annual NOI ÷ target cap as a decimal. Gross rent multiplier = price ÷ annual scheduled rent. Monthly rent-to-price (%) = monthly scheduled rent ÷ price × 100.
A lower target cap implies a higher price for identical NOI. Increasing the purchase price also changes the financed loan, cash required and cash-on-cash result. Re-run the financing rather than changing just the headline ratio.
Worked Example
Hypothetical illustration: these figures are separate from the live calculator inputs.
Suppose a $250,000 rental produces $30,000 of scheduled annual rent. Deduct $1,500 of vacancy and $10,500 of operating expenses: NOI is $18,000 and cap rate is 7.2%. With $14,400 of annual debt service, cash flow is $3,600. If cash invested is $75,000, cash-on-cash return is 4.8%. At a 6% target cap rate, $18,000 of NOI implies a $300,000 value.
What is a good cap rate?
Compare recent sales of similar properties in the same area using consistent expense assumptions. A higher cap rate may compensate for greater uncertainty, deferred maintenance or weaker growth. No single national percentage establishes a good deal.
Rules of Thumb, and Their Limits
The 1% rent rule and gross rent multiplier ignore operating costs. The 50% expense rule is a rough sensitivity test. Capital reserves are often presented below conventional NOI; this widget’s treatment should be checked before comparing with broker or lender figures.
Frequently Asked Questions
Does cap rate include a mortgage?
No. Financing affects cash flow and cash-on-cash return rather than the property’s unlevered cap rate.
Is appreciation included in cap rate?
No. Appreciation is a separate and uncertain component of total return.
Is total return cash I can spend?
Not necessarily. Appreciation is unrealized and principal paydown increases equity; neither automatically becomes cash in your bank account.
Massachusetts and Property-Specific Considerations
Use the municipality’s actual assessed taxes and the property’s current insurance and association costs. Local rent evidence, building condition and the transaction’s legal use matter more than a statewide average. Review current lender or tax requirements where applicable.
Explore Massachusetts investment guides · Use the due diligence checklists · Compare other calculators
Financed Versus All-Cash: A Side-by-Side Example
This illustration uses the assumptions you supplied: a $250,000 price, $2,100 monthly rent, 5% vacancy, $2,750 annual taxes, $1,500 annual insurance and 8% of rent each for maintenance/CapEx and management. Closing costs are $6,000 and initial repairs are $4,000. The financed case uses 25% down at 6.875% for 30 years. Appreciation is assumed at 3% solely for illustration.
| Measure | Financed | All cash |
|---|---|---|
| Cash invested | $72,500 | $260,000 |
| Annual NOI | $15,658 | $15,658 |
| Monthly principal and interest | $1,231.74 | $0 |
| Annual cash flow | $877 | $15,658 |
| Cap rate | 6.26% | 6.26% |
| Cash-on-cash return | 1.21% | 6.02% |
| Year-one principal reduction | $1,951 | $0 |
| Year-one total return | 14.25% | 8.91% |
The cap rate is unchanged by financing. Mortgage debt reduces the cash flow available today, while principal reduction and assumed appreciation create a different total-return result. At a 6% target cap rate, this NOI implies approximately $260,967. That valuation does not account for acquisition costs or guarantee resale value.
Additional Cap Rate Questions
Can I compare cap rates using different NOI definitions?
Only after reconciling the differences. Check replacement reserves, management, vacancy, tenant-paid expenses and whether the income is actual or projected.
Does a low cap rate mean the property is safer?
No. The price may reflect expected growth or location, but those expectations can be wrong. Investigate lease quality, deferred work and market evidence directly.
Is the 1% rule a purchase decision?
No. It relates scheduled rent to price while ignoring repairs, vacancy, taxes, insurance and financing. Use it only as an initial filter.