Property Capitalization Rate CalculatorFree online financial calculator — instant results, no sign-up
Calculate capitalization rate from annual net operating income and property value.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
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About the Property Capitalization Rate Calculator
The Property Capitalization Rate Calculator divides annual net operating income by property value to estimate a property's annual operating yield before financing costs. With annual net operating income of $28,000 and a property value of $400,000, it calculates a capitalization rate of 7%. Use this tool to compare income-producing properties on a consistent basis, separate from mortgage financing.
- Annual net operating income ($)
- The property's annual operating revenue minus operating expenses, excluding mortgage payments, income taxes, depreciation, and capital expenditures, expressed in dollars per year.
- Property value ($)
- The property's purchase price or estimated market value used as the calculation basis, expressed in dollars.
Formula and method
R = (N / V) × 100; with the default inputs, R = (28,000 / 400,000) × 100 = 7%.
- RAnnual capitalization rate, expressed as a percentage.
- NAnnual net operating income, in dollars per year.
- VProperty value, in dollars; must be greater than zero.
Divide annual net operating income by property value, then multiply the ratio by 100 to express it as a percentage. For the default inputs, $28,000 divided by $400,000 equals 0.07, which becomes a capitalization rate of 7%.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Annual net operating income28000 $
- Property value400000 $
Results
- Capitalization rate7%
How to use the Property Capitalization Rate Calculator
- 1Determine annual net operating income by subtracting annual property operating expenses from annual operating revenue.
- 2Enter that amount in Annual net operating income ($); the default is 28000.
- 3Enter the purchase price or estimated market value in Property value ($); the default is 400000, and the value must be greater than zero.
- 4Read the calculated capitalization rate; the default inputs produce 7%.
- 5When comparing properties, use consistent income assumptions and valuation bases.
Reading your result
The capitalization rate output expresses annual net operating income as a percentage of the property value entered. A result of 7% means the default annual net operating income of $28,000 equals 7% of the $400,000 property value. A higher rate indicates more operating income relative to value, but it does not necessarily mean a better investment or lower risk.
Limitations
The calculation assumes the annual net operating income and property value are accurate and measured on a consistent basis. It does not account for mortgage financing, income taxes, appreciation, selling costs, future income changes, or capital expenditures, so it is not a total investment return or cash-on-cash return. Vacancy, maintenance, and other operating assumptions must already be reflected in the income input. Cap rates vary by location, property type, condition, and market conditions. Zero or negative property values are not meaningful calculation bases; negative net operating income produces a negative cap rate.
Common questions
Should I subtract mortgage payments before entering annual net operating income?+
No. Net operating income excludes mortgage principal and interest so the cap rate measures property operating performance independently of financing. Property operating expenses, such as property taxes, insurance, maintenance, and management fees, should be deducted.
Should I enter the purchase price or current market value?+
Use the purchase price to evaluate operating income relative to an acquisition cost, or current market value to evaluate the property's operating yield at today's valuation. The calculator uses whichever basis you enter, so keep that basis consistent when comparing properties.
Does the default 7% capitalization rate mean I will earn a 7% total return?+
No. It means $28,000 of annual net operating income is 7% of the $400,000 property value. Your total return also depends on financing, capital expenditures, changes in property value, transaction costs, and taxes.
Can I enter monthly rental income as annual net operating income?+
No. Use a full year's operating revenue after subtracting a full year's operating expenses. Gross rent is not net operating income, and entering a monthly figure would understate the annual cap rate.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
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Results are estimates for informational purposes and are not financial, medical or legal advice.