Metrics
Cap Rate
Net Operating Income ÷ property value. The unleveraged return a property generates, independent of financing.
Typical: 5–6% in Tier-1 coastal, 6–8% Midwest / Sun Belt, 8–10% cash-flow markets.
How it's calculated
Cap Rate = NOI ÷ Property ValueExample
A property with $36,000 of NOI ($60k gross rent minus $24k expenses) and a $450,000 purchase price has a cap rate of $36,000 ÷ $450,000 = 8.0%.
Why Cap Rate matters
Cap rate lets you compare properties on an apples-to-apples basis regardless of financing. It's also how commercial properties (5+ units) are valued — buyers price them on NOI ÷ market cap rate.
Run the math on a real deal
TrueCap has a free calculator for this. Paste an address or enter numbers manually — get Cap Rate plus all the supporting metrics in 60 seconds.
Try the free Cap Rate calculatorRelated terms
NOI (Net Operating Income)
Gross annual rent minus all operating expenses, before debt service and income tax.
Cash-on-Cash Return
Annual cash flow ÷ total cash invested (down payment + closing + rehab). Tells you how hard your mon…
DSCR (Debt Service Coverage Ratio)
Net Operating Income ÷ mortgage payment. Measures whether the property's income comfortably covers d…
1% Rule
Rule of thumb: monthly rent should equal at least 1% of purchase price. A 5-second screening filter,…
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