Cap rate is net operating income divided by purchase price — nothing else. No mortgage, no down payment, no loan term ever enters the formula. On this calculator's own $350,000 / $2,500-a-month example, the 50% expense rule prices the deal at 4.29%; entering the property's real numbers (5% vacancy, $9,000 in annual operating costs) gives 5.57%. Financing changes what you keep, never this number.
How this calculator builds the number
The formula behind this page has exactly two components: cap rate = net operating income ÷ purchase price. NOI is effective gross rent — gross rent after a vacancy allowance — minus operating expenses. Operating expenses mean property tax, insurance, maintenance, management and repairs. They explicitly exclude the mortgage payment and income tax, which is the single fact that defines cap rate and separates it from every other ratio in this batch.
The calculator offers two ways to reach NOI. The default, the 50% rule, assumes operating expenses consume about half of gross rent and skips the vacancy field entirely — it is a screening shortcut, not a substitute for real numbers. Switching to "enter my expenses" instead subtracts a vacancy allowance from gross rent to get effective gross income, then subtracts your actual annual operating expenses from that. The two paths are not additive: the 50% rule already has vacancy baked in, so entering a vacancy percentage on top of it would double-count the loss.
| Method | Effective gross income | NOI | Cap rate |
|---|---|---|---|
| 50% rule (default) | $30,000 | $15,000 | 4.29% |
| Manual — 5% vacancy, $9,000 opex | $28,500 | $19,500 | 5.57% |
Both rows use the calculator's own $350,000 price and $2,500/month rent prefill; only the expense method changes.
What this number deliberately leaves out
Cap rate treats every buyer as if they paid all cash. That is not an oversight — it is the entire point. Stripping out financing is what lets you compare a property you plan to buy in cash against one you plan to leverage 75%, or compare your own deal against your neighbor's, without the comparison being contaminated by two different loans. The moment you want to know what a specific loan does to your return, cap rate stops answering that question, which is exactly the job the cash-on-cash return calculator does instead — same property, same NOI, but with your actual mortgage subtracted first.
That separation matters most when financing is expensive. Freddie Mac's Primary Mortgage Market Survey for the week ending 09/03/2026 put the 30-year fixed rate at 6.71% and the 15-year at 6.04%. A cap rate below whatever rate you'd actually borrow at — 5.57% against 6.71%, in the worked example above — means the property earns less than the debt costs. Cap rate itself will never show you that gap, because it never touches the mortgage; you have to hold the two numbers side by side yourself.
Why you can't borrow CBRE's cap rate
It's tempting to grab a published national cap rate and use it as a pass/fail line. Resist it. CBRE's H2 2025 U.S. Cap Rate Survey puts the national average going-in cap rate for core multifamily at 4.73%, with an average exit cap of 4.95%. That figure describes institutional Class A apartment transactions — stabilized, professionally managed, typically sold between large funds. A single-family rental, a duplex, or a small multifamily deal bought by an individual investor is a different risk category entirely, and there is no equivalent published cap rate for that segment.
This calculator's own "healthy band" for a US rental is 5–8%, which sits above CBRE's institutional core figure — smaller, less liquid, individually-managed properties are priced to compensate an owner for more work and more risk than an institutional fund accepts. Reading the two numbers together the right way round: 4.73% is a ceiling on how cheap institutional-grade multifamily gets, not a target for the deal in front of you. If a broker quotes a cap rate near 4.7% on a fourplex, ask what NOI assumptions produced it — small deals rarely trade at institutional pricing.
The vacancy assumption is doing more work than it looks
This calculator defaults its vacancy field to 5% — a common planning assumption, roughly one vacant month every 20. The Census Bureau's Housing Vacancy Survey for Q2 2026 measured the actual national rental vacancy rate at 7.3%. Swap that figure into the worked example above — effective gross income falls to $27,810, NOI to $18,810, and cap rate to 5.37%, a 20-basis-point drop from the 5.57% the 5% default produces.
The national HVS figure is a blunt instrument — it averages every market and every property type — but the direction of the exercise holds regardless of your local number: whatever vacancy rate you enter changes NOI by exactly that percentage of gross rent, and cap rate moves in lockstep. If your market runs hotter or colder than the national 7.3%, use your own vacancy history rather than the calculator's 5% default.
How to read a cap rate on a listing or offering memo
- Ask what expense figure produced the NOI. A seller-supplied pro forma routinely omits a management fee (assuming the owner self-manages), understates a capex reserve, or uses a vacancy rate near zero. Rebuild NOI with your own numbers before trusting the headline rate.
- Check whether the rent is in-place or market. A cap rate built on optimistic "market rent" rather than the actual signed leases overstates the property until you can execute the increase.
- Compare it to your own financing, not just the market. A cap rate that looks fine against CBRE's institutional benchmark can still sit below the rate you'd actually pay to borrow — see the leverage comparison above.
None of this requires distrust of the seller specifically — cap rate is simple enough that small assumption changes move it meaningfully, and that is exactly why it rewards recomputing rather than accepting as given.
Methodology
All figures are produced by this calculator's own module (calculateCapRate): annual gross rent = monthly rent × 12; the 50% rule sets NOI to half of gross rent; manual mode computes effective gross income as gross rent × (1 − vacancy%), then subtracts entered operating expenses. Cap rate = NOI ÷ purchase price. The worked examples use the calculator's own $350,000 / $2,500-per-month / $9,000-opex prefill. The institutional benchmark, mortgage rate, and vacancy figures are quoted from the sources below and were not blended into the calculator's own arithmetic.
Sources
- CBRE — U.S. Cap Rate Survey, H2 2025 — accessed 2026-09-07
- Freddie Mac — Primary Mortgage Market Survey, week ending 09/03/2026 — accessed 2026-09-07
- U.S. Census Bureau — Housing Vacancy Survey, Q2 2026 — accessed 2026-09-07