REAL ESTATE TOOLS
Cap Rate Calculator
Cap rate is the single most important number in rental property analysis. Plug in your numbers and see if the deal actually makes sense.
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What is cap rate and why does it matter?
Cap rate (capitalization rate) is NOI divided by purchase price. It tells you the unleveraged yield on a property — what you'd earn if you paid all cash, with no mortgage. It's the cleanest way to compare two properties side by side, independent of how you finance them.
NOI = gross rent − vacancy − all operating expenses. Property taxes, insurance, maintenance, management fees — all of it. What you don't include: mortgage payments (those are a financing decision, not a property characteristic).
Cap rate benchmarks by market
4–5%
Class A urban — trophy markets (NYC, SF, LA). Low yield, high appreciation potential.
5–7%
Class B suburban — most investors' sweet spot. Decent yield + stable tenants.
7–10%
Class C value-add — higher yield, more management intensity, higher vacancy risk.
<4%
You're betting on appreciation, not cash flow. Works in hot markets. Risky in flat ones.
Cap rate vs. cash-on-cash return
Cap rate ignores financing. Cash-on-cash return is what you actually pocket relative to the cash you put in — so it changes based on your mortgage terms. A 6% cap rate property with a 7% mortgage can easily produce negative cash-on-cash returns. Run both numbers before you commit.
The 1% rule (and why it's a shortcut, not a standard)
The 1% rule says monthly rent should be ≥ 1% of purchase price. On a $350K property that's $3,500/mo. In most markets today, 1% is almost impossible — 0.7–0.8% is more realistic. Use it as a quick screen, not a hard rule. Cap rate and actual expense modeling are what matter.
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