Rental deal math

Cap rate, before the loan.

Capitalization rate compares a property's net operating income with its price. Because it ignores financing, it lets you compare properties on the same footing before you pick a loan.

Create a free account to analyze a dealOr use the calculator below, no account needed.

The screening formula

Cap rate = annual net operating income ÷ purchase price

Net operating income is collected rent minus vacancy and operating expenses such as taxes, insurance, repairs, and management. Loan payments are not an operating expense, so they stay out of the formula.

Example: $18,400 in annual net operating income on a $320,000 purchase is a 5.75% cap rate. If taxes rise by $2,000 after a sale reassessment, it drops to about 5.1%.

Inputs worth checking

Taxes after reassessment at your purchase price
Insurance quoted for a rental, not an owner policy
Vacancy and repairs at realistic levels, not zero
Management cost even if you plan to self-manage

Cap rate calculator

Default rate is Freddie Mac's 30-year fixed average for the week of October 1, 2026 (PMMS); investment-property loans usually price higher. Every other default is a placeholder to replace with your deal.

What a cap rate does not tell you

Cap rate says nothing about your loan. A property can have a healthy cap rate and still lose money each month when the loan costs more than the property earns, which is why the calculator also shows cash flow and DSCR. Cap rates also vary by neighborhood, property age, and condition, so compare a deal with similar properties nearby rather than a national rule of thumb.

See how cap rates and cash flow look at metro medians in rental yield by metro, or create a free account to analyze a real listing and save up to five deals.