Real Estate

Cap Rate Calculator

Calculate the capitalization rate for a rental property investment.

Cap rate (capitalization rate) is the core metric used to evaluate income-producing real estate. It measures the unlevered return on a property — independent of financing. A higher cap rate means higher yield but often higher risk.

Enter your numbers

Monthly Rent ($)

Vacancy Rate (%)5%

Annual Operating Expenses ($)

Property tax, insurance, maintenance, management fees — not mortgage.

Purchase Price ($)

Results update as you change the inputs. Calculations run in your browser.

Cap Rate

4.10%

noi: $20500/yr
grm: 16.7x GRM
assessment: Average Market Return

See the formula

Formula and method

Cap Rate = Net Operating Income / Property Value × 100

NOI is gross rent minus vacancy allowance minus all operating expenses (not including mortgage debt service). This gives a financing-neutral return metric.

Worked examples

Toronto condo rental

Monthly Rent ($):: 2800
Vacancy Rate (%):: 3
Annual Operating Expenses ($):: 9000
Purchase Price ($):: 650000

Cap Rate: 3.63%

Secondary market duplex

Monthly Rent ($):: 3200
Vacancy Rate (%):: 5
Annual Operating Expenses ($):: 7000
Purchase Price ($):: 380000

Cap Rate: 7.76%

Assumptions and limits

Vacancy rate applied to gross rent
No capital expenditure reserves included
All expenses except debt service

This tool provides an educational estimate. Rules, rates and personal circumstances can change the answer. Review the assumptions before relying on a result. Report a correction.

Common mistakes to avoid

Including mortgage payments in operating expenses — cap rate is an unlevered metric.
Not accounting for vacancy — even 5% vacancy materially impacts NOI and cap rate.
Using purchase price to evaluate existing investments — use current market value instead.

Frequently asked questions

What is a good cap rate in Canada?

It depends heavily on the city. Toronto and Vancouver properties often trade at 3-4% cap rates (high appreciation expectations). Secondary markets like Hamilton, Ottawa, or Calgary offer 4.5-6%. Rural areas may see 6-8%+.

Is cap rate better than cash-on-cash return?

They measure different things. Cap rate ignores financing, making it useful for comparing properties. Cash-on-cash return factors in your mortgage and down payment, showing your actual yield on invested equity.