Compute annual NOI from monthly rent minus expenses, then cap rate as NOI ÷ purchase price.
Overview
Cap rate measures unlevered yield: net operating income divided by purchase price.
Enter price, monthly rent, and monthly operating expenses (taxes, insurance, maintenance, property management—not mortgage).
NOI = (rent − expenses) × 12. Cap rate% = NOI ÷ price × 100.
Steps
Acquisition price.
Expected rent per month.
Operating costs excluding debt service.
Review annual NOI and cap rate.
Lower rent or raise expenses for downside cases.
Math
NOI = (monthlyRent − monthlyExpenses) × 12; capRate% = NOI / purchasePrice × 100
Annualize monthly net operating income, then divide by price for cap rate.
Worked cases
NOI (2,200−650)×12 = $18,600; cap 6.76%
About 6.8% cap rate.
NOI $15,600; cap ≈ 5.67%
About 5.7% cap rate.
NOI $22,200; cap ≈ 8.07%
About 8.1% cap rate.
Why use this
Questions