CalculateRealEstateROI

ROI Metrics

Capitalization Rate (Cap Rate)

Unleveraged annual return on a property, calculated as NOI divided by purchase price.

Reviewed by Keiron Brown, Founder & Editor, CalculateRealEstateROI · Educational estimates only — not investment, financial, tax, or legal advice

Plain-English explanation

What a property would yield if you paid all cash. Used to compare deals without financing distortion.

Formula

Cap Rate = NOI / Purchase Price

Examples

  • $12k NOI on $200k purchase = 6% cap rate.
  • Class A urban: 4-5%; Class C tertiary: 8-10%.

Common mistakes

  • Confusing cap rate with cash-on-cash.
  • Using listing pro forma NOI instead of trailing actuals.

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