Cap Rate
Targeted question: What is Cap Rate in real estate?
Short answer: Cap Rate (Capitalization Rate) is the unleveraged annual return on a real estate investment, calculated as Net Operating Income divided by the property’s purchase price. For a $400,000 property with $32,000 NOI, Cap Rate = 8%.
What is Cap Rate in real estate?
Cap Rate (Capitalization Rate) is the unleveraged annual return on a real estate investment, calculated as Net Operating Income (NOI) divided by the property’s purchase price.
Formula: Cap Rate = NOI / Purchase Price.
Example: a $400,000 rental that produces $42,000 annual rent and $10,000 annual operating expenses has NOI of $32,000 and a Cap Rate of 8.0%.
Cap Rate excludes financing, depreciation and capital improvements — it is a financing-independent way to compare properties. Typical U.S. single-family rental Cap Rates in 2026 fall in the 5–9% range depending on market.