Rental Property Cap Rate & Cash-on-Cash Calculator – Real Estate ROI & NOI Model

What is Cap Rate & How Does It Measure Rental Returns?

The Capitalization Rate (Cap Rate) is the primary metric used by commercial and residential real estate investors to evaluate the profitability and yield of an income property independent of financing:

Cap Rate = Net Operating Income (NOI) / Property Purchase Price

Net Operating Income (NOI) equals gross rental revenues minus operating expenses (property taxes, insurance, repairs, vacancy allowances, property management). NOI explicitly excludes mortgage principal and interest payments.

Cap Rate vs Cash-on-Cash Return

• Cap Rate: Evaluates the property as an all-cash purchase, enabling objective apples-to-apples comparisons between markets.
• Cash-on-Cash Return: Measures the actual annual pre-tax cash flow divided by the actual cash invested out-of-pocket (down payment + closing costs), measuring the true power of mortgage leverage.

Frequently asked questions

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