Cap Rate Calculator
Calculate capitalization rate for any investment property and determine property value from NOI.
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Cap rates in 2026: what counts as a good deal
National average cap rates for stabilized single-family rentals run 5.5% to 7% in 2026, but the spread between markets is enormous. Coastal gateway metros (San Diego, Boston, Seattle) trade at 4% to 5% because buyers pay for appreciation. Midwest and Southern cash-flow markets (Cleveland, Memphis, Birmingham) trade at 7% to 9%. Multifamily compresses about half a point below single-family in the same metro. A "good" cap rate is one that beats your financing cost with margin, not an absolute number.
The key comparison is cap rate versus mortgage rate. With investor loans near 7%, a 5.5% cap rate property loses money on day one with leverage (negative leverage). You need either a cap rate above your loan rate or a concrete, dated plan to push NOI up. The zero-rate-era habit of accepting 4.5% caps because debt cost 3.5% does not survive 2026 financing.
The formula, done honestly
NOI = gross rent - vacancy (5-8%) - property tax, insurance - maintenance (8-10% of rent) - management (8-10% if not self-managed) - reserves for capex (NO mortgage payment in NOI) Cap rate = NOI / purchase price
Worked example: $300,000 rental at $2,400/month
Gross rent: $28,800/yr Vacancy 5%: -$1,440 Property tax: -$3,600 Insurance: -$1,800 Maintenance: -$2,300 Management 8%: -$1,660 NOI: $18,000 Cap rate = 18,000 / 300,000 = 6.0%
The mistakes that inflate cap rates on listings
Seller pro formas routinely quote cap rates 1 to 2 points above reality by using market rent instead of actual rent, skipping vacancy, omitting management (your time is not free), and ignoring capex reserves. Recompute NOI yourself from the trailing twelve months of actuals: the T12 rent roll and the tax bill, not the brochure. On the example above, skipping management and vacancy would print a 7.0% cap on a 6.0% property, a $50,000 valuation error at the same NOI.
Market ranges from CBRE cap rate surveys and public MLS data through early 2026. Educational estimates, not investment advice. Underwrite every property on its own actuals.
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Frequently Asked Questions
What is cap rate and how is it calculated?
Capitalization rate = Net Operating Income (NOI) / Property Value. NOI = Gross rent minus all operating expenses (taxes, insurance, maintenance, management) but excluding mortgage payments. Cap rate measures the unlevered yield of a property — useful for comparing properties regardless of financing. A $350,000 property with $21,000 NOI has a 6% cap rate.
What is a good cap rate in 2026?
Cap rates in 2026 vary by property type and market: multifamily 4-6% in gateway cities, 6-8% in secondary markets. Industrial 4-6%. Retail 5-7%. Office 6-9% (higher due to uncertainty). Single-family rentals 4-7%. Higher cap rates generally mean higher risk or lower growth markets. Rising interest rates push cap rates up (prices down).
Cap rate vs cash-on-cash return: what is the difference?
Cap rate ignores financing — it measures the property yield as if bought all-cash. Cash-on-cash return includes your mortgage payment and measures actual cash flow relative to cash invested. If you buy at a 6% cap rate with a 7% mortgage rate, you may have negative cash flow despite a good cap rate. Use cap rate for valuation, cash-on-cash for investment decisions.