What a cap rate actually is
Capitalization rate = net operating income (NOI) ÷ property value. NOI is annual rent minus operating expenses — taxes, insurance, management, maintenance, vacancy — but NOT the mortgage. It expresses the unlevered return a property throws off, which is why investors use it to compare deals regardless of how each is financed.
How to calculate it
Example: a property generating $30,000 a year in rent with $12,000 of operating expenses has an NOI of $18,000. At a $300,000 price, the cap rate is $18,000 ÷ $300,000 = 6%.
So what's a 'good' cap rate?
There's no universal answer. In expensive, stable, low-risk metros, cap rates compress to the low single digits — investors accept less income for safety and appreciation. In cheaper or higher-risk markets, cap rates run higher to compensate. A 'good' cap rate is one that beats comparable local properties and clears your required return for the risk.
Why cap rate isn't enough
Cap rate ignores financing, so two investors buying the same property at the same cap rate can have very different cash flow depending on their loans. It also rests entirely on the accuracy of your rent and expense estimates — garbage in, garbage out. Pair it with a full cash-flow model.
See the cap rate on any listing
HomeInteli estimates cap rate, gross yield, and rent in every report's investment lens — with the inputs shown so you can sanity-check them. Paste a listing link to run it.