💡 How to Calculate Cap Rate (Made Simple)

[Marcus Adam]

Cap Rate (short for Capitalization Rate) is a quick way to measure how much income a property produces compared to its value. Investors use it to see if a deal makes sense.

👉 The Formula:
Cap Rate = Net Operating Income (NOI) ÷ Property Value
 • Step 1: Find the NOI (Net Operating Income).
 • Take the annual rent income.
 • Subtract expenses like taxes, insurance, and maintenance (not the mortgage).
 • Step 2: Divide NOI by the purchase price (or property value).

📊 Example:
 • Rent income: $24,000/year
 • Expenses: $6,000/year
• NOI = $18,000
 • Purchase Price = $300,000

Cap Rate = $18,000 ÷ $300,000 = 6%

✅ A higher cap rate = potentially higher return (but usually higher risk).
✅ A lower cap rate = safer area/property, but less return.