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Rental Yield and Cap Rate Calculator

Free online rental yield and cap rate calculator. Evaluate rental property investments with gross yield, net operating income, and capitalization rate instantly.

Enter Values

Property Purchase Price

Monthly Rent

Annual Operating Expenses

Taxes, insurance, maintenance, management

Vacancy Rate

0%100%

Expected vacancy percentage (default 5%)

Result

Enter values above and click Calculate to see your result.

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Formula

Core Formula

\text{Gross Yield} = \frac{\text{Annual Rent}}{\text{Property Price}} \times 100 \\[6pt] \; \text{Cap Rate} = \frac{\text{NOI}}{\text{Property Price}} \times 100

How it works: Gross Rental Yield measures total rent as a percentage of property price. Cap Rate (Capitalization Rate) uses Net Operating Income (rent minus operating expenses and vacancy) divided by property price - a more accurate measure of investment return before financing.

Worked Example

Property: $250,000, Rent: $1,800/month, Expenses: $6,000/year, Vacancy: 5%

1Step 1: Annual rent = $21,600

2Step 2: Effective income = $21,600 × 95% = $20,520

3Step 3: NOI = $20,520 − $6,000 = $14,520

4Step 4: Cap Rate = $14,520 / $250,000 = 5.81%

What Are Rental Yield and Capitalization Rate?

Rental yield and capitalization rate, often called cap rate, are fundamental metrics for anyone evaluating real estate investments, especially rental properties. Gross rental yield provides a preliminary look at a property's income generation. It is calculated by dividing the total annual rent by the property's purchase price. This figure offers a high-level percentage return based solely on rent, before any expenses. While useful for an initial comparison, it does not account for the true cost of ownership.

The capitalization rate offers a more detailed and accurate picture of a property's profitability. To calculate cap rate, you first need to determine the Net Operating Income (NOI). NOI is the total annual rental income minus all annual operating expenses, including property taxes, insurance, maintenance, and an allowance for vacancies. The cap rate is then found by dividing this NOI by the property's current market value or purchase price. It represents the unleveraged, before debt service, return on investment. Both metrics are crucial for assessing the financial viability and comparing different investment opportunities in the real estate market.

Gross rental yield offers a quick, high-level overview of potential rental income.
Cap rate provides a more refined profitability metric by accounting for operating expenses and vacancies.
Investors use cap rates to compare different investment properties across various markets.
These metrics are key tools for evaluating the potential return on a real estate investment before financing.

Understanding and calculating these metrics are essential steps in making informed real estate investment decisions. Use this calculator to quickly assess your potential rental property's financial performance.

You can also calculate changes using our 70% Rule House Flip Calculator, E-commerce Profit Calculator or Churn Impact Calculator.

Frequently Asked Questions

What is a good cap rate?

Generally, 5-10% is considered good. Higher cap rates (8%+) indicate stronger cash flow but may come with more risk. Lower cap rates (3-5%) are common in premium locations with appreciation potential. It depends on your investment strategy.

What is the difference between gross yield and cap rate?

Gross yield uses total rent divided by price - a quick, rough measure. Cap rate uses Net Operating Income (after subtracting expenses and vacancy) divided by price - a more accurate picture of actual returns.

What expenses should I include?

Include: property taxes, insurance, maintenance/repairs (budget 1% of property value), property management (8-12% of rent), HOA fees, and landscaping. Do NOT include mortgage payments - cap rate measures return before financing.

What is the price-to-rent ratio?

Price-to-rent ratio = property price / annual rent. Under 15 generally favors buying, 15-20 is a gray area, and above 20 often favors renting. Investors look for lower ratios (better cash flow).

How can I put this Rental Yield and Cap Rate Calculator on my blog or website?

Yes, the Rental Yield and Cap Rate Calculator is fully embeddable. Tap "Embed" above to configure appearance and copy the code. It is free to use, works on any platform (HTML, WordPress, CMS), and adjusts to any screen size automatically. Visit calculory.com/services/embed-calculators for the complete guide.

Financial Disclaimer

This calculator is provided for informational and educational purposes only. It is not intended as financial, investment, or tax advice. Results are estimates and may not reflect your actual financial situation. Always consult a qualified financial advisor or tax professional before making any financial decisions based on these results.

AI Assistant

Ask about this calculator

I can help you understand the rental yield and cap rate calculator formula, interpret your results, and answer follow-up questions.

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