Cap rate calculator
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The formula, a worked example, and the specific way this measure gets misquoted.
How it works
Capitalisation rate is net operating income as a percentage of the property's value. Because it deliberately ignores how the purchase was financed, it lets two buyers with different mortgages compare the same building.
The formula
cap rate = net operating income / property value
- Enter the price and rent, then your running costs.
- Read net operating income — income after costs, before any mortgage.
- Cap rate is that NOI divided by the price.
Worked example
| Item | Value |
|---|---|
| Net operating income | $14,900.00 |
| Purchase price | $300,000.00 |
| Cap rate | 4.97% |
| Net yield | 4.75% |
The mistake to avoid
Subtracting the mortgage before computing it. Net operating income is defined as income before financing; once the loan is inside it, the result is not a cap rate and it makes the same building look like a different asset to every buyer.
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What is the difference between rental yield and cap rate?
Cap rate is net operating income divided by the property's value, and it deliberately ignores financing. Net yield divides the same income by what you actually spent to acquire the property, including stamp duty and fees. Cap rate compares buildings; net yield compares your deals. Neither accounts for the mortgage — that is cash-on-cash return.
Should buying costs be included in rental yield?
For net yield, yes. Stamp duty, legal fees and renovation are money you spent to own the asset, so measuring income against price alone flatters the result — by a full percentage point in markets with high transfer taxes. This calculator shows gross on price and gross on total side by side so the gap is visible rather than assumed.