How to Calculate Cap Rate: Complete Guide for Real Estate Investors
Cap rate is the most fundamental metric in real estate investing. Learn how to calculate it correctly, what counts as a good cap rate, and how it changes by market.
InvestorVerdict Editorial
Published January 22, 2026
Investment Risk Disclaimer
This article is for educational purposes only and does not constitute financial, investment, or tax advice.
Table of Contents
- What Is Cap Rate?
- How to Calculate NOI
- Cap Rate Example
- What's a Good Cap Rate?
What Is Cap Rate?
Capitalization rate (cap rate) measures a property's yield assuming an all-cash purchase. The formula is: Cap Rate = Net Operating Income (NOI) / Property Value.
How to Calculate NOI
NOI = Gross Rental Income − Vacancy Loss − Operating Expenses. It does NOT include mortgage payments or depreciation.
Cap Rate Example
A duplex purchased for $400,000 generates $3,200/month in gross rent. After vacancy and expenses: $2,200/month NOI. Annual NOI = $26,400. Cap Rate = $26,400 / $400,000 = 6.6%.
What's a Good Cap Rate?
- 8–10%+: Strong cash-flow market
- 5–7%: Appreciation-focused markets
- Below 4%: Trophy assets, speculative plays
Investment Risk Disclaimer
All content on InvestorVerdict is for educational purposes only and does not constitute financial, investment, tax, or legal advice. Real estate and cryptocurrency investments carry significant risk, including the potential loss of principal. Past performance does not guarantee future results. Always conduct your own due diligence and consult qualified professionals before making investment decisions.