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Includes property taxes, insurance, maintenance, property management, etc.
Cap rate (capitalization rate) is one of the most important metrics for evaluating rental property investments.
Cap Rate = (NOI / Purchase Price) × 100
Cap rate (capitalization rate) is a metric used to evaluate the return on investment of a rental property. It's calculated as (Net Operating Income / Purchase Price) × 100. Cap rate measures the property's income-generating potential relative to its purchase price.
A good cap rate typically ranges from 4% to 10%. Lower cap rates (4-6%) indicate stable, low-risk markets with strong appreciation potential. Moderate cap rates (6-8%) are typical of stable markets with good rental demand. Higher cap rates (8-10%) suggest emerging markets with higher returns but also higher risk.
Cap rate = (NOI / Purchase Price) × 100, where NOI (Net Operating Income) = Annual Rental Income - Annual Operating Expenses. Cap rate excludes financing costs and focuses purely on the property's income-generating ability.
NOI is the annual income from a property after all operating expenses but before financing costs. It includes rental income minus property taxes, insurance, maintenance, property management fees, and vacancy costs. NOI is a key metric used by lenders and investors to evaluate properties.
Cap rate helps investors compare properties regardless of financing structure. It shows the property's income potential relative to its price, making it easier to evaluate deals and compare investment opportunities across different markets.
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