Free investment tool
Calculate a property's capitalization rate, annual net operating income, or implied value. Then use the guide below to normalize NOI and interpret the result in the context of tenant, lease, and real estate risk.
Annual Gross Income: $54,000
Industry average is 5-10% for residential rentals
Effective Gross Income
$51,300
After vacancy adjustment
Total Operating Expenses
$17,520
32.4% of gross income
Gross Income
$54,000
Total Expenses
$17,520
Net Operating Income (NOI)
$33,780
Monthly NOI
$2,815
Capitalization Rate
6.76%
Good return for stable markets
Core formula
Cap rate compares one year of stabilized property NOI with price or value. It is a fast unlevered yield measure, not a complete return forecast.
Solve for cap rate
Cap Rate = Annual NOI ÷ Property Value × 100
Use annual stabilized NOI and the price or current market value you want to test.
Solve for value
Value = Annual NOI ÷ Market Cap Rate
A lower market cap rate implies a higher value when NOI is held constant.
Solve for NOI
NOI = Property Value × Cap Rate
Use this to estimate the NOI required to support a target price at a selected cap rate.
Get the numerator right
Cap-rate output is only as reliable as the NOI input. Reconcile trailing results with the lease, reimbursements, budgets, and likely stabilized expenses.
Worked example
Assume annual base rent of $96,000, landlord-paid expenses of $6,000, and a $1,500,000 purchase price.
Annual rent
$96,000
Contract rent and recurring property income before ownership expenses.
Owner expenses
$6,000
Expenses not reimbursed by the tenant under the actual lease.
Annual NOI
$90,000
Revenue less recurring operating expenses, before debt service and income tax.
Cap rate
6.00%
$90,000 NOI divided by $1,500,000 purchase price.
NNN interpretation
For a single-tenant asset, cap rate reflects both real-estate risk and the market's view of the contractual income stream.
Use the right metric
These measures answer different questions and should not be used interchangeably.
Measures unlevered NOI relative to total property value. It is useful for comparing property pricing before considering a particular investor's financing.
Measures annual pre-tax cash flow after debt service relative to cash invested. Loan amount, interest rate, amortization, and closing costs can cause it to differ sharply from cap rate.
Clear answers
Straightforward answers to the questions investors ask most often.
Divide annual net operating income by the property's purchase price or current value, then multiply by 100. A property producing $60,000 of NOI at a $1,000,000 value has a 6% cap rate.
NOI generally includes recurring property revenue less ordinary operating expenses such as property taxes, insurance, repairs, management, utilities paid by ownership, and unreimbursed common-area costs. It excludes debt service, income taxes, depreciation, amortization, and usually major capital expenditures.
There is no universal good cap rate. Required return varies with tenant credit, lease term, rent growth, location, building utility, lease obligations, market liquidity, interest rates, and residual value. Compare the cap rate with genuinely similar properties and the risks you are accepting.
No. A higher cap rate can mean more current income relative to price, but it often signals greater tenant, lease, location, condition, vacancy, financing, or resale risk. The source and durability of NOI matter more than the percentage alone.
Cap rate is an unlevered property metric based on NOI and value. Cash-on-cash return measures annual pre-tax cash flow after debt service relative to actual cash invested, so financing materially affects it.
Explore active net lease opportunities and evaluate the tenant, remaining lease term, rent structure, location, and purchase basis behind each advertised return.
