Cap Rate
Net Operating Income ÷ property value. The unleveraged return a property generates, independent of financing.
No universal range is a property fact or investment threshold. Compare consistently calculated cap rates using dated, local evidence and the same expense conventions.
Metrics
How it's calculated
Cap Rate = NOI ÷ Property Value
Example
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.
Related 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,…
- GRM (Gross Rent Multiplier)
- Property price ÷ annual gross rent. The simplest screening ratio in real estate — no expense data re…
- Negative Leverage
- When your borrowing rate exceeds the property's cap rate, so every borrowed dollar costs more than t…
Where Cap Rate shows up in TrueCap
The analyzer computes this metric on every run from the assumptions you see and can edit, and shows it in the results view.