Cap Rate & Rental Yield Calculator

Cap Rate measures an investment property's unleveraged rate of return: Cap Rate = (Net Operating Income / Property Purchase Price) × 100. It evaluates property yield excluding debt financing.

Cash-on-Cash return evaluates the return on actual cash invested: (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100, factoring in mortgage debt service and upfront down payment plus closing costs.

The 50% rule is a quick guideline estimating that 50% of an investment property's gross rental income will be consumed by operating expenses (excluding mortgage principal and interest).

Gross Rental Yield compares annual rent to purchase price without expenses. Net Cap Rate deducts property taxes, insurance, repairs, vacancy reserves, and property management from rental revenue.

In primary metropolitan markets, Cap Rates typically range from 4% to 6% (higher appreciation, lower risk). In secondary and tertiary markets, investors seek 7% to 10%+ for stronger immediate cash flow.

The IRS allows residential rental properties to be depreciated over 27.5 years. This non-cash paper deduction offsets taxable rental income, frequently shielding cash flow from federal income taxes.