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Cap Rate Calculator
Cap rate expresses a property's unleveraged annual return: the net operating income it produces relative to its price. It is the fastest way to compare two buildings without financing muddying the comparison.
Results
- Net operating income
- $42,780
- Cap rate
- 5.9%
- Effective gross income
- $52,380
- Expense ratio
- 17.8%
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Analyze the property with AIThe formula
Cap Rate = Net Operating Income ÷ Property Value
NOI is gross rental income minus vacancy and operating expenses. It excludes mortgage payments, capital expenditures and income tax.
Worked example
- A duplex is listed at $725,000.
- Gross annual rent is $54,000 with a 3% vacancy allowance, so effective income is $52,380.
- Operating expenses (taxes, insurance, utilities, maintenance, management) total $9,600.
- NOI = $52,380 − $9,600 = $42,780.
- Cap rate = $42,780 ÷ $725,000 = 5.9%.
How to read the result
A higher cap rate means more income per dollar of price, but it usually also signals more risk: older buildings, weaker locations, or less reliable tenancy.
Cap rate only works as a comparison tool when the NOI is calculated the same way each time. Sellers often quote a cap rate that excludes management, vacancy or capital reserves, which inflates it.
Because cap rate ignores financing, two investors buying the same building at the same price share the same cap rate but can have very different cash-on-cash returns.
Frequently asked
What is a good cap rate?
It depends entirely on the market and asset. In large Ontario centres, stabilised residential income properties often trade at low cap rates because buyers pay for growth and stability; smaller markets and older buildings typically trade higher. Judge a cap rate against comparable recent sales in the same submarket, not a national rule of thumb.
Should mortgage payments be in NOI?
No. Debt service is excluded so the metric reflects the property rather than the buyer's financing. Use DSCR and cash-on-cash return to evaluate the effect of the mortgage.
Should I include capital expenditures?
Capital items such as a roof or furnace are not operating expenses, but ignoring them entirely overstates returns. Many underwriters carry a reserve line in their own NOI and disclose that they have done so.
A calculator answers one question. PropertyEdge makes the whole decision.
Run the whole property — NOI, valuation, financing, risks, stress tests, your maximum offer and a BUY / NEGOTIATE / PASS verdict, with every assumption labelled.
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Ontario benchmarks by city
Local prices, rents, property tax and land transfer tax — the inputs this calculator needs.
- See Toronto benchmarks
- See Hamilton benchmarks
- See Mississauga benchmarks
- See Ottawa benchmarks
- See London benchmarks
- See Kitchener-Waterloo benchmarks
- See Burlington benchmarks
- See Oakville benchmarks
- See Brampton benchmarks
- See Niagara benchmarks
- See Guelph benchmarks
Other calculators
- Cash-on-Cash Return Calculator
- DSCR Calculator
- Rental Property Calculator
- ROI Calculator
- Mortgage Calculator
- Maximum Offer Calculator
PropertyEdge provides analysis and estimates for informational purposes only. It is not investment, tax, legal or appraisal advice, and no return or investment outcome is guaranteed. Estimates are modelled from the assumptions shown and must be verified against leases, inspections, tax bills and municipal records before you make an offer.