Calculate the capitalization rate for any rental property in seconds. Just enter your numbers — we'll do the math.
Gross rent collected per year (before expenses).
Taxes, insurance, maintenance, PM fees, vacancy allowance — but not mortgage payments.
Cap Rate
6.00%
4–7% is the workhorse range for most US rental markets. Reasonable cash flow with reasonable risk.
Same income, different purchase price. NOI is fixed — so the more you pay, the lower your cap rate. The amber dot is your numbers.
For informational purposes only. Computed from the data you provide; not investment, tax, or financial advice. Consult a qualified advisor before acting on any figure.
Keystone IQ computes cap rate live for every property you own — refreshed every page load, no spreadsheet, no manual entry. Pulls income and expenses straight from your bank and property-manager (PM) owner packets.
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Capitalization rate — usually shortened to "cap rate" — measures the annual return a rental property generates relative to its value, independent of how the property is financed. It's the single most-used quick metric for comparing one investment property against another.
The formula is simple: divide net operating income (NOI) by the property's current value. NOI is the rent you collect minus the operating expenses needed to keep the property running — taxes, insurance, repairs, property-management fees, and a realistic vacancy allowance. NOI deliberately excludes mortgage payments, depreciation, income tax, and capital improvements, so cap rate measures the property itself, not your financing structure.
Cap rate is most useful as a comparison tool. A 5.5% cap rate on a Bay Area duplex and a 5.5% cap rate on an Indianapolis single-family carry very different risk profiles — the Bay Area property is priced for appreciation, the Indianapolis one is priced for cash flow.
As a rough national-average rule of thumb in 2026: under 4% is appreciation-focused or trophy assets, 4–7% is the workhorse range for most US markets, 7–10% is strong cash flow in B-/C-class neighborhoods, and anything over 10% deserves a hard second look for hidden problems (deferred maintenance, high vacancy, declining neighborhood, or a misclassified expense line).
Cap rate ignores leverage entirely, which is most investors' actual return amplifier. If you put 25% down on a 6% cap-rate property at 7% mortgage rates, your cash-on-cash return is the number that actually pays your mortgage — not cap rate.
For evaluating a specific deal you're buying, look at cash-on-cash return alongside cap rate. For evaluating whether your portfolio is healthy after closing, look at DSCR (debt service coverage ratio) and OER (operating expense ratio). For deciding whether to refinance, look at the refi-adjusted cash flow, not the historical cap rate.
Cap rate is the right metric for: comparing two properties side by side, valuing a property from its income stream (price = NOI / desired cap rate), and tracking how a market is shifting over time.
There's no universal answer — it depends on your market and risk tolerance. Most US single-family and small-multifamily investors target 5–8% in 2026. Below 4% usually means you're paying for future appreciation; above 10% usually means you're being compensated for real risk (high vacancy, deferred maintenance, declining neighborhood). Whatever you target, compare apples to apples within the same market and asset class.
Cap rate ignores financing — it tells you what a property earns relative to its full purchase price. Cash-on-cash return measures what your actual cash investment earns after mortgage payments. A property might have a 6% cap rate but a 12% cash-on-cash if you finance it with 25% down. Cash-on-cash is what actually pays your mortgage and lands in your pocket; cap rate is the comparison metric for the property itself.
Yes — always include a realistic vacancy allowance in your expenses (typically 5–8% of gross rent depending on your market). Computing cap rate from 100% occupancy gives you a number that looks great on paper but won't match reality. Use trailing 12-month actual vacancy if you have it; use 5–8% as a default if you don't.
Include: property taxes, insurance, repairs and maintenance, property-management fees (even if you self-manage — value your time), utilities you pay, HOA dues, lawn care / snow removal, and a vacancy + bad-debt allowance. Exclude: mortgage payments (cap rate is unlevered), depreciation, income tax, and capital improvements (those affect cash flow, not operating income).
For a deal you're evaluating, use the purchase price — that's the real capital you're committing. For tracking how a property you already own is performing, use current market value, otherwise your cap rate stays artificially high as the property appreciates. Most portfolio software (including Keystone IQ) recomputes cap rate against current value daily.
Cap rate ignores three things that matter a lot: financing (leverage amplifies returns), tax treatment (depreciation can shelter significant income), and appreciation (the largest wealth-building lever in real estate). Use cap rate to compare two deals quickly, then layer in cash-on-cash, DSCR, and a multi-year forecast before committing capital.
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