Rental Yield and Cap Rate Calculator

Introduction

Rental yield and cap rate are quick ways to compare income property opportunities before financing enters the picture. Gross rental yield starts with rent relative to price. Cap rate goes a step deeper by using net operating income, which means rent after vacancy and operating expenses but before mortgage payments, income tax, depreciation, and capital gains.

This calculator estimates effective gross income, NOI, gross yield, cap rate on purchase price, cap rate on all-in cost, expense ratio, and the monthly rent needed to hit a target cap rate. Use it to compare properties consistently, not to replace due diligence, appraisals, inspections, or local market research.

How to use

Enter the property price, monthly market rent, recurring monthly operating expenses, expected vacancy, upfront acquisition or repair costs, and a target cap rate. Operating expenses should include items such as taxes, insurance, management, routine maintenance, utilities paid by the owner, and HOA fees. Do not include mortgage principal or interest in the expense field when calculating cap rate.

Try conservative scenarios. Raise vacancy, add a repair reserve, and include upfront closing or renovation costs. A property can look strong on price-only cap rate while becoming ordinary once all-in cost and vacancy are included.

Formula summary

Effective gross income equals annual rent after vacancy. Net operating income subtracts annual operating expenses, cap rate divides NOI by property value, and all-in cap rate divides NOI by value plus upfront acquisition and repair costs.

Example to try

A $300,000 property renting for $2,400 per month with 5% vacancy and $500 monthly expenses produces $21,360 of NOI. That is a 7.1% cap rate on price, before financing and taxes.

Limitations to check

Cap rate excludes mortgage payments, depreciation, income tax, appreciation, capital expenditure shocks, and tenant-specific risk. Confirm rent, vacancy, taxes, insurance, and repair assumptions with local evidence before comparing deals.

Formula and method

The calculator starts with effective gross income after vacancy:

Net operating income and cap rate are then:

All-in cap rate uses purchase price plus upfront costs as the denominator. That can be more useful when a property needs closing costs, repairs, furnishing, or concessions before it can produce stabilized rent.

Worked example

A $300,000 rental with $2,400 of monthly rent, 5% vacancy, and $500 of monthly operating expenses has $27,360 of effective gross income and $6,000 of annual expenses. NOI is $21,360. Dividing by $300,000 gives a 7.12% cap rate. If the acquisition also needs $15,000 of upfront costs, the all-in cap rate is 6.78%.

Assumptions and limitations

• Cap rate excludes financing. Mortgage principal, interest, lender fees, and refinancing risk belong in a separate cash-flow model.
• Expenses should be operating expenses. Major capital improvements may need a reserve or separate underwriting line.
• Rent is not guaranteed. Verify market rent with comparable listings, actual leases, and local vacancy patterns.
• Taxes and appreciation are excluded. Cap rate is a snapshot of property income, not a full after-tax investment return.
• All-in cost matters. Closing costs and immediate repairs can move a deal from acceptable to weak even when price-only cap rate looks good.

Interpreting the result

A higher cap rate usually means more current income per dollar of property value, but it can also signal higher risk, more repairs, weaker tenant demand, or slower appreciation. Compare cap rates within the same market and property type. A lower cap rate may be reasonable for a lower-risk property, while a high cap rate deserves close inspection of rent quality, expenses, neighborhood risk, and deferred maintenance.

FAQ

What is the difference between rental yield and cap rate?

Gross rental yield divides annual rent by property price. Cap rate divides NOI by price or value after vacancy and operating expenses.

Should mortgage payments be included in cap rate?

No. Cap rate is financing-neutral. Mortgage payments belong in a cash-flow, debt-service-coverage, or cash-on-cash return calculation.

Why use an all-in cap rate?

All-in cap rate includes upfront acquisition costs and immediate repairs in the denominator, which often gives a more realistic comparison between properties.