How to use the cap rate calculator
Enter the price you expect to pay and the gross rent the property would earn in a full year at full occupancy. A single unit renting for $2,400 per month has $28,800 in gross annual rent. For a small multifamily property, add the scheduled rent from all units and use a vacancy rate that reflects the income you expect to lose. Review the leases and local comparable rents before assuming you can raise rents.
Use annual amounts for property tax, insurance, HOA dues, and other operating costs. The calculator applies maintenance and management percentages to expected rent after vacancy. For a manager who quotes a percentage of scheduled rent, adjust the percentage or enter the expected dollar expense under other costs. Include owner-paid utilities, recurring landscaping, or routine servicing if you expect to pay for them.
What cap rate, NOI, and GRM measure
Net operating income, or NOI, is the income left after vacancy and recurring operating expenses. The calculator multiplies gross rent by one minus the vacancy rate to estimate rent collected. It subtracts expenses from that amount to get NOI. Cap rate is annual NOI divided by property price, expressed as a percentage. A property with negative NOI has a negative cap rate because its operating costs exceed its expected income.
Gross rent multiplier, or GRM, divides property price by gross annual rent. It uses scheduled rent before vacancy and expenses. A lower multiplier means a lower price for each dollar of scheduled rent. Two properties with the same multiplier can have very different cap rates if one has higher taxes, insurance, or maintenance costs. Use GRM as a quick price screen before checking NOI.
Worked example on a $300,000 rental
A $300,000 property with $28,800 in gross annual rent and 5% vacancy has $27,360 in expected collected rent. Taxes of $3,000, insurance of $1,200, HOA dues of $600, and other expenses of $600 total $5,400. Maintenance at 5% and management at 8% of collected rent add $1,368 and $2,188.80 respectively.
Total operating expenses are $8,956.80, leaving $18,403.20 in annual NOI. Divide that by $300,000 to get a 6.13% cap rate. Divide the price by $28,800 in gross scheduled rent to get a 10.42× gross rent multiplier. If expected vacancy goes up, NOI and cap rate fall while GRM stays the same.
Common mistakes when comparing rentals
Keep mortgage payments outside NOI so you can compare properties on the same operating basis. Financing still matters to the money you take home. Use the mortgage calculator to estimate debt service and the rental property calculator to look at cash flow with financing.
Use the same accounting treatment across properties. Routine repairs belong in operating costs. Major replacements such as a roof are usually tracked separately as capital costs, and you should still budget for them when assessing cash flow. Check whether the property tax or insurance bill may change at purchase. A cap rate under 4% is low by this calculator’s rough benchmark, while 8% or higher is strong on paper. Compare similar properties in the same market and check what occupancy, repairs, and rent assumptions support each yield.
Frequently asked questions
What is a good cap rate for a rental property?
A cap rate around 4% to 7% can be a useful starting point for comparison, and 8% or more signals a higher modeled yield. Location, condition, local demand, and operating risk all affect what buyers consider good.
Does cap rate include the mortgage payment?
Cap rate uses property income and operating expenses before financing. Mortgage principal and interest affect the owner’s cash flow separately.
Should I use purchase price or market value?
Use the expected purchase price to evaluate an acquisition. For a property you own, enter an estimated current market value if you want the operating yield on today’s value.
What rent should I enter for a vacant property?
Use a realistic annual rent estimate based on comparable units, then enter a vacancy allowance. Test a lower rent or higher vacancy assumption if the estimate is uncertain.
Why is gross rent multiplier blank?
GRM needs a positive price and positive gross rent. Enter both to calculate the multiplier.