Measure a rental property's return independent of how it's financed. The capitalization rate lets you compare deals apples-to-apples, whether you pay cash or borrow.
▶ Run the CalculatorOpens live in the Rental Flow app - no account needed.
The cap rate (capitalization rate) is the property's annual net operating income expressed as a percentage of its purchase price. Because it ignores financing, it answers a clean question: if you bought this property with cash, what return would the operations alone produce? That makes it the standard yardstick for comparing one rental against another.
Net operating income (NOI) is your annual rental income minus annual operating expenses - taxes, insurance, maintenance, management, and the like. It does not subtract mortgage payments; that's what keeps cap rate financing-neutral.
| Purchase price | $250,000 |
| Annual rental income | $24,000 |
| Annual operating expenses | $8,400 |
| Net operating income | $15,600 |
| Cap rate | 6.24% |
A "good" cap rate depends entirely on your market - 4% might be strong in an expensive coastal city and weak in a cheaper one. Use it to rank properties you're considering in the same area, not as a universal pass/fail.