GoodDoors Property Management
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Home/Cap Rate Calculator

Cap Rate Calculator

Capitalization rate and net operating income for any Canadian rental, calculated live. Enter the value, the rent and the operating costs, and read the cap rate off the results panel.

  • NOI and cap rate update as you type
  • Vacancy allowance built into the income line
  • No sign-up to use

Rental Property Calculator

Plug in your numbers. NOI, cash flow, cap rate, and cash-on-cash return update live.

Property and loan

Monthly rent

Operating assumptions

Cap rate sits in the results panel alongside NOI. The mortgage fields feed the cash flow and cash-on-cash figures and are deliberately excluded from the cap rate itself. Leave them at zero if you only want the unlevered numbers.

The formulas

Four lines of arithmetic. The judgment is entirely in the inputs.

  • Capitalization rate
    Cap rate = Net operating income ÷ Property value
    Annual NOI over the value or purchase price, expressed as a percentage.
  • Net operating income
    NOI = Effective rental income − Operating expenses
    Operating expenses only. The mortgage is deliberately excluded, which is the whole point of the measure.
  • Effective rental income
    Effective rental income = Gross rent − Vacancy loss
    Use a realistic vacancy allowance rather than assuming the unit is never empty.
  • Value implied by a target cap rate
    Value = NOI ÷ Target cap rate
    The same formula rearranged. This is how a buyer prices an income property.

What a cap rate does and does not tell you

  • It ignores your mortgage on purpose

    Cap rate measures the property, not the financing. Two buyers paying the same price for the same building get the same cap rate even if one pays cash and the other borrows 80%. That is what makes it useful for comparing properties.

  • It is a snapshot, not a return

    Cap rate tells you the unlevered yield at one moment on one set of assumptions. It says nothing about rent growth, what you will spend on the roof in year six, or what you will sell it for.

  • It is only as honest as the expense line

    The most common way a cap rate gets inflated is by leaving costs out. Property tax, insurance, maintenance, management and a real vacancy allowance all belong in NOI. Omit them and the number goes up while the property does not get better.

The mistake that makes a property look better than it is

Frequently asked questions

How do you calculate the cap rate?
Divide annual net operating income by the property's value or purchase price. NOI is your effective rental income, meaning gross rent less a vacancy allowance, minus operating expenses such as property tax, insurance, maintenance, management and utilities you pay. The mortgage payment is not an operating expense and does not belong in the calculation.
What does a 7% cap rate mean?
It means the property produces net operating income equal to 7% of its value each year, before financing and before tax. On a $350,000 property that is $24,500 of NOI. It is an unlevered yield: what the building earns, independent of how you paid for it.
What does a 7.5% cap rate mean?
The same thing at a slightly higher yield: $7.50 of annual net operating income for every $100 of value. Read side by side with a 6% property, the 7.5% one either earns more relative to its price or carries more risk, and usually it is some of both. The number itself does not tell you which.
Is a 6% cap rate good?
It depends entirely on what else you could buy and what the money costs you. A 6% cap rate on a well-maintained property in a stable neighbourhood is a different proposition from 6% on a building that needs a roof. Compare it against other properties in the same market on the same day, and against your borrowing rate. If the cap rate is below your mortgage rate, leverage works against you.
Is 3% a good cap rate?
Rarely, for a residential rental bought as an investment. At 3% the property is producing very little income relative to its price, so the case for buying it rests almost entirely on expected appreciation. That is a bet on the market rather than on the building, and it is a hard position to hold if the property also has negative cash flow.
Is 20% a good cap rate?
A 20% cap rate is high enough that the first thing to do is check the inputs rather than celebrate. It usually means expenses have been left out of NOI, the rent assumed is above what the unit actually achieves, or the value used is well below market. If the numbers survive scrutiny, it points to real risk somewhere: condition, location, tenancy, or a rent roll that will not hold.
What is a good cap rate in Saskatchewan?
There is no single published figure, and we do not print one, because a defensible answer needs current comparable sales rather than a rule of thumb. What we can tell you is what moves it here: property tax differs materially between Regina and Saskatoon and between neighbourhoods, insurance has risen faster than rent in recent years, and older stock carries higher maintenance. Our Regina and Saskatoon market updates carry the sourced rent and vacancy figures that feed the top of this calculation.
Cap rate or cash-on-cash return, which should I use?
Both, for different questions. Cap rate compares properties to each other without financing in the way. Cash-on-cash return tells you the yield on the money you actually have tied up, so it moves with your mortgage rate and down payment. A property can show a healthy cap rate and a poor cash-on-cash return if it is heavily leveraged at a high rate.

Related

Where the inputs to this calculation come from, and the fuller model.

If the property is one you are deciding whether to keep at all, our guide on renting versus selling a house in Saskatchewan works the break-even math for both cities, and the change of use rules cover the tax event that lands the day a former home becomes a rental.