Cap Rate & NOI Calculator
Work out net operating income and cap rate for a rental, and see why the figure is identical however you finance the purchase.
Operating expenses means taxes, insurance, management, maintenance and capital reserves — and not the mortgage. Excluding debt service is what makes the cap rate a fact about the building rather than about the buyer. Nothing is uploaded.
The cap rate cannot see your mortgage, by design
Two buyers of the same building at the same price have the same cap rate whether one pays cash and the other borrows ninety per cent. Every row below is the identical 5.17%, because net operating income excludes debt service. That is not an omission — it is the point.
| Down payment | Cap rate |
|---|---|
| 100% | 5.17% |
| 50% | 5.17% |
| 35% | 5.17% |
| 25% | 5.17% |
| 20% | 5.17% |
| 10% | 5.17% |
Which makes it the right tool for comparing buildings and the wrong one for deciding whether to buy. At 25% down this property runs at 5.17% and loses money every month — a fact the cap rate has no way to express. For that you want cash-on-cash return, which is the same property seen from the buyer's side.
The expense line people leave out
Taxes, insurance and management are on everybody's list. Capital reserves — the roof, the boiler, the flooring, spread across the years between replacements — are on almost nobody's, because they are not a bill that arrives monthly. Individually none of them looks like much. Together they come to $194 a month, which is 8.1% of the rent.
| Item | Cost | Lasts | Per month |
|---|---|---|---|
| Roof | $12,000 | 25 years | $40 |
| Heating and cooling | $7,000 | 18 years | $32 |
| Water heater | $1,600 | 12 years | $11 |
| Flooring | $6,000 | 15 years | $33 |
| Kitchen | $12,000 | 25 years | $40 |
| Exterior paint | $4,500 | 10 years | $38 |
| Together | $194 |
Leaving them out does not make them cheaper. It moves a property from marginal to attractive on paper and nowhere else, and the bill arrives regardless — usually in a year when the unit is also empty, since that is generally when the work gets done.
How to use
- Enter the purchase price and gross monthly rent.
- Add a vacancy allowance and your operating expenses.
- Read net operating income and the cap rate.
- Check the capital reserves table before trusting the expense figure.
Frequently asked questions
What is a cap rate?
Net operating income divided by the purchase price. NOI is rent less vacancy less operating expenses — and specifically NOT less the mortgage, which is what makes the cap rate a fact about the building rather than about the buyer.
Why does the mortgage not appear?
Because two buyers of the same building at the same price would otherwise get different answers, and then the number could not compare buildings. Excluding debt service is the whole point of the metric, and it is also its limitation.
Does the cap rate tell me whether to buy?
No. It is identical at every down payment and every interest rate, while the same property can return +5% on cash bought outright and −15% at 10% down. For that question you want cash-on-cash return, which is the same property seen from the buyer side.
What counts as an operating expense?
Property taxes, insurance, management, maintenance, utilities you pay, and capital reserves. Not the mortgage, and not improvements that add value rather than maintaining it.
What are capital reserves and why do they matter?
The roof, the heating system, the water heater, the flooring — spread across the years between replacements. Six ordinary items, none costing more than $60 a month on its own, come to over $190 together, which is around 8% of the rent. They are left out constantly because they are not a monthly bill, and leaving them out is what moves a marginal property to attractive on paper.
What expense ratio should I expect?
Usually 35% to 55% of gross rent once reserves are counted. A listing claiming 25% is worth a second look — either something is missing or the taxes are unusually low, and it is worth knowing which.
How much vacancy should I assume?
It varies by market and by how quickly you re-let, but assuming none is the one clearly wrong answer. Five to eight per cent is a common starting point, and it comes off the top before expenses.
Does this send anything anywhere?
No. Every figure is computed in your browser, and nothing is uploaded or stored.
🔒 This tool runs entirely in your browser. Nothing you enter is uploaded, logged, or stored.