BYTETOOLS

Cap Rate Calculator

Calculate capitalisation rate from net operating income and price, or solve the price from a target cap rate, with GRM and the 1% rule screening check.

$77,000
Net operating income
7.70%
Cap rate
$1,184,615
Price at target cap rate
8.33
Gross rent multiplier

How the net operating income is built

Gross scheduled rent$120,000
Less vacancy and credit loss−$6,000
Plus other income$3,000
Effective gross income$117,000
Less operating expenses−$40,000
Net operating income$77,000

Screening ratios

Price used for these ratios$1,000,000
Operating expense ratio34.19%
Gross rent multiplier (price ÷ gross rent)8.33
Monthly rent as a share of price1.00%
1% / 2% rule checkClears the 1% rule

The 1% rule is a quick screen, not a valuation: it asks whether monthly rent is at least 1% of the price. It works badly in expensive markets, where almost nothing passes.

Cap rate = net operating income ÷ price, where NOI = gross rent × (1 − vacancy) + other income − operating expenses. Mortgage payments, depreciation and income tax are deliberately excluded, because a cap rate describes the property rather than your financing. Worked check: $120,000 gross rent at 5% vacancy plus $3,000 other income less $40,000 of expenses gives an NOI of $77,000, which is a 7.70% cap rate on a $1,000,000 price and implies a $1,184,615 price at a 6.5% target. Arithmetic only, not investment advice.

What is the Cap Rate Calculator?

The ByteTools Cap Rate Calculator builds net operating income properly before dividing it by anything.

  • Full NOI build-up from gross rent, vacancy, other income and expenses
  • Solves either the cap rate from a price or the price from a target cap rate
  • Gross rent multiplier and operating expense ratio included
  • 1% and 2% rule check on monthly rent against price
  • Mortgage correctly excluded from net operating income
  • Runs offline in the browser; no listings or data are fetched

How to use the Cap Rate Calculator

  1. 1

    Choose whether to solve for the cap rate from a price, or for the price from a target cap rate.

  2. 2

    Enter the gross annual rent at full occupancy and your vacancy and credit-loss percentage.

  3. 3

    Add any other annual income such as parking, laundry or storage.

  4. 4

    Enter annual operating expenses — tax, insurance, repairs and management, but never the mortgage.

  5. 5

    Read the NOI and cap rate in the tiles, then check the income build-up and the screening ratios below.

About the Cap Rate Calculator

The ByteTools Cap Rate Calculator builds net operating income properly before dividing it by anything. Gross rent is reduced by vacancy, other income is added, operating expenses are taken off, and the result is divided by the price to give the capitalisation rate — with the mortgage deliberately excluded, because a cap rate describes the property, not your financing.

Flip it around and the same figures solve the other way: enter the cap rate you need and it returns the price that delivers it, which is how commercial property is actually valued. Alongside that you get the gross rent multiplier, the operating expense ratio and the familiar 1% and 2% rent-to-price screening checks.

It is for landlords, small commercial buyers and anyone comparing two listings on the same basis. All calculations run in your browser with nothing uploaded, and the results are estimates for screening rather than a formal valuation or investment advice.

Frequently asked questions

How do you calculate cap rate?

Divide net operating income by the property's price or value. A property producing $70,000 of NOI and priced at $1,000,000 has a 7% cap rate. NOI is rent after vacancy plus other income, less operating expenses.

What is a good cap rate for rental property?

It depends entirely on the market and asset class — 4% can be normal in a prime city while 8% might be expected in a smaller market. A high cap rate signals higher yield and higher risk, so compare only against similar properties nearby.

Does cap rate include the mortgage?

No, and that is the point. Net operating income excludes financing, depreciation and income tax, so the cap rate measures the property itself. Two buyers with different loans can compare the same building on the same basis.

What is the 1% rule in real estate?

It is a quick screen asking whether monthly rent is at least 1% of the purchase price — $2,000 a month on a $200,000 house. It is a filter, not a valuation, and almost nothing passes it in expensive markets.

What is the gross rent multiplier?

Price divided by gross annual rent. A $1,000,000 building with $120,000 of rent has a GRM of 8.33. It ignores expenses entirely, so it is useful for a first-pass comparison but never a substitute for the cap rate.

Related tools