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Cap Rate Calculator: Estimate NOI and Capitalization Rate on a Rental
Enter value, rent, vacancy and operating costs to see the net operating income a rental produces before financing, and the cap rate that lets you compare one property against another.
A cap rate calculator divides a property's annual net operating income — rent after vacancy minus operating expenses, before any mortgage payment — by its price or value. The result is a financing-neutral yield that helps investors compare properties, though it says nothing about cash flow after the loan.
- ✓NOI equals effective rent minus operating expenses, excluding principal and interest.
- ✓Cap rate equals NOI divided by price or value.
- ✓Include a vacancy allowance — full occupancy overstates NOI.
- ✓A higher cap rate can signal more income or more risk.
- ✓Lenders size investor loans on payment coverage, not cap rate.
What this means for you: cap rate compares properties; the DSCR ratio and cash-on-cash return tell you whether the deal works with your financing.
Written by
Simply Approved Mortgages Team
Licensed Loan Officers · NMLS# 2620881
Get your personalized scenario summary
Complete the short request and a Simply Approved Mortgages Loan Officer sends back a written summary built from your own numbers: estimated payment breakdown, estimated cash to close, the loan structures that fit your file, and what documentation the file will need.
- Estimated monthly payment with taxes and insurance
- Estimated cash to close for your scenario
- Loan options your profile may fit
- Document checklist for your file
Takes about 3 minutes · Summary shown on screen and emailed to you
Illustration only, generated from the information you enter. Not a rate quote, lock, loan estimate, pre-qualification, offer, approval, or commitment to lend. Figures are subject to credit, income, asset and property review and full lender underwriting; binding numbers appear on your Loan Estimate.
Scenario summary
- Purchase price entered
- $412,000
- Down payment entered
- $20,600
- Estimated loan amount
- $391,400
- Estimated cash to close
- $14,300
- Programs reviewed
- 4
Sample layout with example figures — your own numbers replace these. Simply Approved Mortgages LLC · NMLS #2620881 · Equal Housing Opportunity.
How the cap rate formula works
Start with twelve months of scheduled rent, subtract a realistic vacancy allowance, then subtract the costs of running the property: property taxes, insurance, management, repairs, utilities you pay, and association dues. What remains is net operating income. Divide it by the price, and you have the capitalization rate.
What to leave out
Mortgage principal and interest stay out of the formula on purpose. That is what makes cap rate useful for comparing a duplex in Tampa with a townhome in Colorado Springs, regardless of how each might be financed. Capital improvements such as a new roof are usually treated separately from routine operating costs.
Want these numbers built around your file?
A short request is all it takes to get a written scenario summary back from a Simply Approved Mortgages Loan Officer. Binding figures appear on your Loan Estimate.
Reading the number honestly
- A higher rate is not automatically better: older buildings, weaker locations or unstable rents often carry higher cap rates.
- Use expenses from the actual tax bill and an insurance quote rather than percentages when you can.
- Re-run the numbers with higher insurance — a frequent surprise in Florida.
From cap rate to financing
Once a property passes your cap-rate screen, test it with the DSCR calculator, which compares rent with the full proposed payment, and the cash-on-cash return calculator, which measures return on the cash you put in.
Compare loan officer compensation on your mortgage quote
Loan officer compensation is part of the cost of a mortgage. On eligible residential loans, Simply Approved Mortgages generally uses 1.5% lender-paid compensation. Enter the compensation shown on another lender's Loan Estimate to see the difference in dollars.
Compensation difference on this illustration: $3,750.
How lower compensation can help you
When less compensation is built into pricing, there can be room for a lower interest rate, which may lower your monthly payment.
Depending on the rate you choose, pricing can sometimes include a lender credit toward third-party closing costs, so you may bring less cash to closing.
A lower rate means a lower monthly payment, which can lower your debt-to-income ratio and may help you qualify for more home on the same income.
As a mortgage broker we compare pricing from wholesale lenders instead of offering a single bank’s retail pricing.
Tip: On page 2 of your Loan Estimate, look at Section A, "Origination Charges." If the lender pays the loan officer, that compensation usually does not appear there as its own line; it is built into the interest rate. That is why comparing the rate and any lender credits side by side matters.
Already have a Loan Estimate from another bank or broker? Share it with a Simply Approved Mortgages Loan Officer, who will compare the rate, fees and credits side by side with options we can arrange. No cost to request a review.
Illustration only — not a quote, lock, offer, or commitment to lend; binding figures appear on your Loan Estimate. Lender-paid compensation is paid by the lender, not directly by you, and is part of the loan's pricing, so the loan is not free of costs. A lower compensation figure does not by itself guarantee a lower rate or lower closing costs; individual results vary by credit, loan type, property and market conditions. Residential lending in FL and CO only. Simply Approved Mortgages LLC · NMLS #2620881 · Equal Housing Opportunity.
Cap Rate Calculator
Results
- Gross annual rent
- $50,400
- Effective gross income
- $47,880
- Net operating income (NOI)
- $32,280
- Capitalization rate
- 7.17%
Cap rate excludes mortgage payments by design; operating expenses should include taxes, insurance, management, maintenance and HOA but not principal or interest. Illustrative only, not a quote, lock, offer, or commitment to lend. Binding figures appear on your Loan Estimate.
Next steps
Emailing your Cap rate calculator scenario opens our secure request form so a Simply Approved Mortgages Loan Officer can review those numbers. Estimates are illustrative and are not a quote, lock, offer, or commitment to lend.
Assumptions, methodology, and limitations
Effective gross income is monthly rent times twelve, reduced by the vacancy percentage you enter. Net operating income is effective gross income less twelve months of the operating expenses you enter. Cap rate is NOI divided by the purchase price or value.
Uses only the figures you enter; does not verify rents, taxes or insurance for any address and excludes capital expenditures, financing and income taxes. Illustrative only, not a quote, lock, offer, or commitment to lend.
Results are illustrative estimates only and are not a quote, lock, offer, or commitment to lend. No rate, APR, or program approval is implied. Binding figures appear on your Loan Estimate. Eligibility, terms, and availability vary by borrower, property, lender, loan program, and state.
Talk through your scenario today
A Simply Approved Mortgages Loan Officer can confirm which of these paths actually fits your credit, income, and property. Educational only, no obligation.
Purchase market update
What buyers should know this month
30-Yr Fixed · national avg
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15-Yr Fixed · national avg
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2026 buying power
Conforming baseline: $832,750
FHA floor / ceiling: $541,287 – $1,249,125
Compare a long-term lease, Section 8, and a short-term rental
The same house produces three different files depending on how you rent it. Enter your payment and your own operating assumptions, pick the county so the voucher column starts from the published Fair Market Rent, and compare what is left for debt service under each strategy. Every figure is an illustrative estimate, not a quote, lock, offer, approval, or commitment to lend, and none of it is a projection of what your property will earn.
Shared inputs
Published Fair Market Rent for this selection: loading… a month. HUD source
Lease and voucher assumptions
Short-term rental assumptions
Optional. We look up published market performance for the address and fill the nightly rate and occupancy below. You can edit both afterwards.
Short-term operating costs are usually the largest of the three strategies, and the gross figure alone is never the comparison.
| Strategy | Gross after vacancy | Net before debt service | Cash flow vs PITIA | Coverage ratio |
|---|---|---|---|---|
| Long-term lease12-month lease, market rent | $2,444 | $2,200 | $-200 | 0.92 |
| Housing Choice Voucher (Section 8)HUD Fair Market Rent × payment standard | $0 | $0 | $-2,400 | — |
| Short-term rentalNightly rate × occupancy | $3,705 | $2,297 | $-103 | 0.96 |
On the assumptions entered, short-term rental leaves the most income before debt service. That is arithmetic, not advice: the strategy a lender will actually underwrite depends on the documentation available, the program, and whether the use is permitted at the address.
Long-term lease
- What underwriting reads
- The executed lease or the appraiser rent schedule (Form 1007/1025), commonly the lower of the two.
- Income pattern
- One tenant, one renewal cycle a year.
- What to check first
- A single move-out takes the whole income to zero until it re-leases.
Housing Choice Voucher (Section 8)
- What underwriting reads
- The executed HAP contract plus the tenant portion, generally compared with market rent.
- Income pattern
- The agency portion is paid by the PHA on a set schedule; the tenant portion stays your collection risk.
- What to check first
- The unit must pass inspection, and the PHA has to find the rent reasonable before the contract starts.
Short-term rental
- What underwriting reads
- Twelve months of platform or property-manager statements, or a market revenue projection where a program accepts one.
- Income pattern
- Seasonal and event-driven; revenue can swing widely month to month.
- What to check first
- Local ordinances, HOA rules, licensing, and a landlord policy that does not cover nightly stays.
Next steps
Emailing your Rental strategy comparison scenario opens our secure request form so a Simply Approved Mortgages Loan Officer can review those numbers. Estimates are illustrative and are not a quote, lock, offer, or commitment to lend.
Assumptions, methodology, and limitations
Each column starts from the income you enter, reduces it by the vacancy allowance you enter, then subtracts the operating-cost percentage you enter to reach net income before debt service. The voucher column starts from the published HUD Fair Market Rent for the county and unit size you select, multiplied by the payment standard percentage you enter. The short-term column multiplies your nightly rate by 30.42 average nights a month and your occupancy percentage. Coverage ratio divides net income before debt service by the monthly PITIA you enter.
Every figure is an estimate built from your own inputs and is not a quote, rate lock, offer, approval, or commitment to lend, and it is not a projection of income the property will earn. A Fair Market Rent is a published schedule, not an approved rent: the public housing agency sets the payment standard, must find the rent reasonable against comparable unassisted units, and must pass the unit at inspection before a contract begins. Short-term rental use may be restricted or prohibited by local ordinance or HOA rules, and requires insurance written for nightly stays. Lenders differ on which documents they will accept for each strategy and on how they treat vacancy and expenses, and program parameters can change without notice.
Illustrative only. Binding figures appear on your Loan Estimate, and terms vary by borrower, property, lender, program, and state.
Related tools
Tools for a DSCR investment property file
Only the estimators that apply to this kind of file. Every output is an illustrative estimate built from figures you enter — not a quote, rate lock, offer, approval, or commitment to lend.
Business-purpose loans are for non-owner-occupied property only. Program availability, leverage and terms vary by state, property and program, and can change without notice. Simply Approved Mortgages LLC is a mortgage broker and arranges, but does not make, loans. Equal Housing Opportunity.
Cap rate calculator: common questions
Answers to the most common cap rate calculator: common questions, written by licensed loan officers.
Ask SAM anything about mortgages
SAM is the Simply Approved Mortgages AI assistant. It answers general questions using the reviewed guides published on this site and links you to the primary government source. It is educational only — it does not quote a rate, payment, APR, approval or commitment to lend. A Simply Approved Mortgages Loan Officer reviews every scenario before any terms are confirmed.
Hi, I'm SAM — an AI assistant for Simply Approved Mortgages. I can explain loan programs, closing costs, DTI, down payments and which calculator or guide to use. I'm not a licensed loan officer, and nothing here is a quote, approval or commitment to lend.
Ask Sam AI provides general educational information only. It is an automated assistant, may be incomplete or out of date, and does not provide legal, tax or financial advice. Nothing it produces is a rate quote, APR, pre-approval, offer or commitment to lend. Never share a Social Security number, ITIN, date of birth, account number or password in chat. Simply Approved Mortgages LLC (NMLS #2620881) arranges residential mortgage loans in Florida and Colorado. Eligibility, terms, conditions and availability vary by borrower, property, lender, loan program and state, and all loans are subject to lender underwriting and approval. Equal Housing Opportunity.
Trusted government resources
These independent government resources can help you research mortgage programs, rates, and your rights before you apply.
Internal Revenue Service
IRS — Residential rental property income and expenses (Publication 527)
Federal Housing Finance Agency
FHFA — House Price Index
U.S. Census Bureau
Census Bureau — Rental vacancy and homeownership data
Simply Approved Mortgages is not affiliated with HUD, the CFPB, the FTC, the VA, or any other government agency. Links are provided for your independent verification.
How this page connects
Where this fits in the mortgage library library
This page sits inside our Mortgage library coverage.
What most readers open next
- Every loan program we arrangeBecause to see which program this topic applies to.
- The loan program comparisonBecause to place this topic against the alternatives.
- How underwriting reviews a fileBecause the standard most rules serve.
- The payment calculatorBecause to turn the rules into a monthly figure.
- Getting pre-approvedBecause the next step once the reading is done.
Explore the full guide
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