Cap Rate Calculator

Most investors target a cap rate between 4% and 10% for residential rental properties. Lower cap rates (4%–6%) are typical in high-demand urban markets where property values are high. Higher cap rates (7%–10%) are more common in smaller cities or markets with higher vacancy risk. The right cap rate depends on your risk tolerance and local market conditions.

Cap rate and rental yield use the same basic formula — annual rent divided by property value — but rental yield is more commonly used in the UK and Australia, while cap rate is the standard US term. In the US, cap rate is typically calculated using net operating income (after expenses) rather than gross rent, making it a net figure. This tool calculates gross cap rate using gross rent.

Cap rates in California are generally low due to high property values. In Los Angeles, San Francisco, and San Jose, residential cap rates typically range from 3% to 5%. Inland areas such as the Central Valley and Inland Empire tend to see higher cap rates of 5% to 7%. Low cap rates in California reflect strong long-term appreciation expectations rather than high current income.

Texas markets generally offer higher cap rates than coastal states. Dallas-Fort Worth, Houston, and San Antonio typically see residential cap rates between 5% and 8%. Austin has seen cap rate compression in recent years due to rapid price growth. Texas has no state income tax, which can make cash flow comparisons with other states more favourable.

New York City cap rates for residential properties typically range from 3% to 5% in Manhattan and prime Brooklyn neighbourhoods. Outer boroughs and upstate New York markets tend to offer 5% to 8%. Rent stabilisation laws in New York City can cap rent growth, which affects long-term cap rate projections.

Florida cap rates vary significantly by market. Miami and Orlando vacation-rental markets often see gross cap rates of 5% to 8%, though short-term rental income can be less predictable. Tampa and Jacksonville offer more stable cap rates of 5% to 7% for long-term rentals. Florida has no state income tax, which improves net returns.

No. Cap rate is calculated before financing costs. It measures the return on the property as if purchased with cash. To account for mortgage costs, use cash-on-cash return instead, which measures the return on the actual cash you invested after debt service.

If you know your net operating income (rent minus operating expenses, before mortgage), divide NOI by the property price and multiply by 100. For example, a property with $18,000 NOI and a $300,000 purchase price has a cap rate of 6%. This tool uses gross rent rather than NOI, so subtract your operating expense ratio to convert to a net cap rate.

Yes. The income approach to property valuation uses cap rate: Property Value = Net Operating Income / Cap Rate. If comparable properties in your area trade at a 6% cap rate and your property generates $18,000 NOI, the estimated value is $300,000. Lenders and appraisers use this method for income-producing properties.

No. Cap rate measures the income return relative to property value, assuming an all-cash purchase. Return on investment (ROI) accounts for total return including appreciation, loan paydown, and tax benefits. Cap rate is a snapshot metric used for comparison and valuation, not a measure of total investment performance over time.