Free investor tool
Cap Rate Calculator
Net operating income, cap rate and the full operating statement behind them — with the property-tax rules of California, Washington, Oregon, Nevada and New Mexico built in. Results on the page, no email.
Written by Johana Williams • Reviewed By: Peter Evering • Last updated: August 20, 2026
Cap rate is a popular first screen for new investors. While it is true that the ratio is a good way to compare one building against another, it's not as simple as dividing two numbers. There are many common omissions in a listing proforma that can cost you thousands of dollars, and avoiding those pitfalls will help you make an informed offer.
Leave the vacancy allowance out and the cap rate rises. Forget the management fee, and it rises again. Use the seller's property tax bill on a California building held since the Clinton administration, and it rises a third time, by a margin that can turn a 4.1% return into an apparent 5.2%.
So this calculator shows the whole operating statement rather than only the answer. Every line that feeds net operating income is visible and editable, the tax line starts from what a buyer at today's price would actually owe in the state you select, it computes as you type, and there is no gate on the result.
Where is the property?
Tax growth ceiling applied: per year. Rent cap: .
Purchase
Financing
Income
Operating expenses
Projection assumptions
Legal ceiling here:
Your results
Negative at down. This property covers its mortgage at about down — or if rent reaches .
Operating expenses exceed collected rent, so no down payment makes this cash-flow. Check the expense lines.
Computed live. Nothing here is emailed or stored.
Monthly operating statement
| Gross potential income | |
| Less vacancy | |
| Effective gross income | |
| Management fee | |
| Property taxes | |
| Insurance | |
| Maintenance + reserves | |
| HOA, utilities, flat fees | |
| Total operating expenses | |
| Net operating income | |
| Mortgage (P&I) | |
| Cash flow |
Every metric
-year projection
Property tax grows at a year — the ceiling applies — while rent grows at .
| Yr | Rent | Tax | NOI | Cash flow | Value |
|---|---|---|---|---|---|
Want these numbers checked against the real market?
We manage rentals in 5 states and can tell you what the property actually rents for, what it costs to run, and what the tax bill becomes after close.
Get a rental analysisThe formula, and the part people get wrong
Cap rate is net operating income divided by the property's total cost, expressed as a percentage. A building throwing off $42,000 of NOI at a $750,000 all-in cost caps at 5.6%.
The basic calculation for cap rate on a rental property is first taking the annual income the building produces, then subtracting the annual cost of operating it, and dividing that number by the property's total cost. The result is a percentage representing the building's performance. While this basic formula is always the same, there are a variety of variables that will impact the numerator, and net operating income is where they all land — it is effective gross income, meaning rent and other income after vacancy, less every operating expense:
- Management
- Property taxes
- Insurance
- HOA dues
- Maintenance and the capital reserve
- Owner-paid utilities
- Flat annual charges such as a leasing fee
Note that this figure only shows how much surplus the property itself can produce, and does not include your loan or your depreciation schedule. Both of those are facts about you rather than about the building, and folding them in makes the number useless for the one job it has. Always remember — the mortgage never belongs in the numerator!
Three things a listing proforma usually omits
When it's time to run the numbers, inexperienced investors often miss or underestimate key expenses. On a marketed cap rate the three that go missing are almost always the same:
- Vacancy. A statement at 100% occupancy describes a year that has never happened. Four percent is tight-market realistic, and seven is closer to normal in Seattle and Portland right now.
- Management. Even where the owner self-manages, that labor has a market price, and the next buyer will pay it.
- The capital reserve. The roof is depreciating whether or not this year's statement admits it.
Work with a consultant or someone who has owned a similar property to ensure your expense estimates are accurate. Restore those three and a marketed 6.5% frequently settles somewhere near 5% — that is not pessimism, it is the figure you will be living with.
What counts as a good cap rate
What kind of range should you expect? Cap rate is a yearly ratio that reflects risk and expected growth at the same time, so there is no universal threshold. Cap rates on single-family and small multifamily rentals in our markets typically range from about 4% to 6.5% depending on the metro. Some submarkets price lower depending on the rent and value growth buyers expect — a stabilized building in a coastal California submarket may trade in the high 4s precisely because that growth is priced in, while the same building in a slower market has to yield more to attract the same money.
From the Bay Area and coastal San Diego at the bottom of that band to Las Vegas, Albuquerque, Spokane and the Inland Empire toward the top, each submarket has its own pricing and risk and appeals to different buyers. What matters more than hitting a target is that you compared like with like: the same vacancy assumption, the same reserve, and the same management fee on both properties.
Why the tax line changes the answer here
Reading a tax line can be a confusing process for anyone, especially if you are buying in a state that resets the assessment on sale. Property taxes are usually the second-largest operating expense after management, and they are the only one whose future is set by statute rather than by the market. Even if you plan to hire a professional to run your numbers, understanding how the bill moves can inform your purchasing decisions.
There are many variables beyond the purchase price when it comes to a property's tax line. Whether you are buying in a state that caps how fast the bill can climb, one that resets the assessment the moment the property changes hands, or one that revalues every single year, the figure your bill is calculated from is the value the county assesses — not the price on the listing, and not what the current owner has been paying.
While a long-held California building can look cheaper to run than a comparable one next door, the tax bill can rise by a factor of three, and it may do so as soon as the first bill after closing. Proposition 13 reassesses at the purchase price on sale and then caps assessed-value growth at 2% a year: a seller's $3,100 bill can become $9,600 the day you close — a $6,500 hit to NOI, which on a $750,000 purchase moves the cap rate by nearly nine tenths of a point.
There are a few different rules to go about this depending on where you buy:
- Oregon — Measure 50 caps growth in maximum assessed value at 3% annually.
- Nevada — the bill's annual increase is capped at 3% for owner-occupied homes but up to 8% on a rental, and the higher figure applies unless every unit rents at or below the HUD limits, so most investors get the 8%.
- New Mexico — residential valuation growth is capped at 3%, and the cap lifts the year after a sale, so the assessment resets to market.
- Washington — reassessed at market value every year with no parcel-level cap, which means the tax line tracks appreciation more directly than in the other four.
Always check the assessor's figure for the parcel and the rules of the state it sits in. Selecting a state above sets both, for the current-year figure and for the ten-year projection below the results.
Why a duplex and a single-family home cap differently
Before comparing two cap rates, it is always important to weigh the advantages against the risks to be sure you are comparing like with like. A multifamily property — an apartment building, or a multi-unit complex like a duplex or triplex — behaves differently from a single-family rental in ways the ratio alone will not show you:
- Multiple streams of cash flow. A major benefit of multifamily is the income coming in from each unit, meaning that even if you have one vacancy you are still seeing revenue. A single-family rental goes to zero the moment it is empty, which is why the vacancy allowance matters more there.
- Scalability. Rather than investing in single-family homes one by one, a multifamily property can quickly grow your portfolio — and at five or more units it is considered commercial, which changes both the financing and the buyer pool.
- Greater upfront expense. The upfront cost is far greater than your average single-family home, and it is typically required to have 20% of the total cost to purchase, so plan for that plus some as a buffer.
- More to manage. A multifamily property takes on the responsibilities of a single home and multiplies them, which is exactly the cost the management fee in the calculator is standing in for.
The city you buy in matters as much as the type. Some duplexes sell for tens of millions in a high-cost area, whereas in a smaller, more suburban market you may be able to stretch your dollar a bit further — and the cap rate will reflect that difference rather than explain it.
Financing changes your return, but not the cap rate
There are many perks beyond additional income when it comes to owning investment properties, and the way you pay for one decides how much of that income reaches you — without moving the cap rate at all. Whether you are buying to fix and flip for profit, purchasing land for a future endeavor, or acquiring property to rent out for a steady flow of income, the cost to get started can be high and seemingly unattainable. Here are the common methods, and what each does to the cash-on-cash figure beside the cap rate:
- Conventional bank loans. This is the most common method of financing and can be obtained from a bank or lending institution. With conventional financing for a home the down payment is 10-20% of the price, but sometimes a lender may require 30% when it comes to an investment property. Your credit score and history are evaluated before approval and then determine your interest rate.
- Hard money loans. Popular in fix-and-flip investments and often obtained from real estate investors, these are short-term, high-interest loans. While they can be easier to obtain than conventional bank loans, the interest rates can be as high as 18% and may require payback as soon as one year from borrowing.
- Personal savings. If you have the funds, this avoids accruing debt or interest. Of course, risks should be evaluated to avoid tying up your capital. Paying cash removes the debt service line entirely, which is why an all-cash purchase and a financed one on the same building return the same cap rate and completely different cash-on-cash figures.
- Tapping home equity. If you own property already you can use that equity through a home equity loan, a HELOC drawn as needed rather than as a lump sum, or a cash-out refinance that replaces your existing mortgage with a larger one.
Toggle the cash option in the calculator to watch this happen: the cap rate holds still while the cash-on-cash return and the DSCR move.
Cap rate, GRM, and when to use which
Gross rent multiplier — price divided by annual gross rent — is the back-of-the-envelope cousin. It is fast, it needs no expense data, and it is fine for sorting a list of forty listings down to six. It is also blind to the thing that most often separates two similar buildings, which is what they cost to run: a property with owner-paid heat and a 1960s roof can share a GRM with a newer building and produce meaningfully less NOI. Use GRM to screen and cap rate to decide. Both appear in the results.
Where this stops
Make sure you understand what is included in and excluded from the view this gives you. It is pre-tax and property-level: it does not model depreciation, your marginal rate, passive-loss limits, or a 1031 exchange, and it assumes a 6% cost of sale in the projection.
Having to make this decision can be very confusing; however, after keeping these figures in mind, run the building on your own vacancy and reserve numbers rather than the listing's. If a deal turns on the tax treatment rather than on the operations, the next conversation is with a CPA — and you will walk into it with the operating numbers already straight.
The rules the calculator applies, by state
Property tax growth ceilings and rent-increase limits as of August 2026. These change — the rent caps annually — so check the current figure before you sign anything.
California
tax growth cap 2% • rent cap 8.2%–8.8%Proposition 13 reassesses the property at your purchase price when you buy, then caps assessed-value growth at 2% a year. Model the tax on what you pay, not on the seller's bill — theirs may be based on a 1990s basis.
AB 1482 caps increases at 5% plus regional CPI, to a 10% ceiling — 8.2% to 8.8% across our California metros for Aug 2026–Jul 2027. Single-family homes and condos are exempt when you serve the required notice.
Washington
tax growth cap 3% • rent cap 9.683%Washington assesses at market value every year with no per-parcel cap, so the tax line tracks appreciation more closely here than in the other four states.
HB 1217 caps increases at the lesser of 10% or 7% plus CPI — 9.683% for 2026 — with no increase in the first 12 months and 90 days' notice. Seattle adds a 180-day notice and relocation assistance on larger increases.
Oregon
tax growth cap 3% • rent cap 9.5%Measure 50 taxes the lesser of real market value and maximum assessed value, and caps growth in that maximum at 3% a year, so Oregon tax bills drift up slowly and predictably.
SB 611 caps 2026 increases at 9.5%, with a 15-year exemption for new construction and 90 days' notice. Portland adds relocation assistance running from $2,900 to $4,500 on 10%-plus increases.
Nevada
tax growth cap 8% • rent cap noneNevada caps how fast a tax bill can rise, but the rental cap is up to 8% a year — not the 3% owner-occupants get — unless every unit rents at or below the HUD limits. Over a ten-year hold that difference compounds into real money.
Nevada has no rent cap. NRS 118A.300 requires 60 days' notice for an increase on a month-to-month tenancy, and deposits are capped at three months' rent.
New Mexico
tax growth cap 3% • rent cap noneNew Mexico works like California in miniature: §7-36-21.2 caps growth in a residential valuation at 3% a year, and the cap drops away the year after the property changes hands, so the assessment resets to market on sale. The default rate here reflects Bernalillo County, which runs above the statewide median of roughly 0.63%.
The Rent Control Preemption Act (§47-8A-1) bars any New Mexico city or county from capping rents, and a 2025 attempt to repeal it died in committee. SB 267 did tighten the fee rules from June 2025: late fees fell from 10% to 5% and are now calculated on rent alone, and raising a fee set in the lease takes 60 days' written notice.
Frequently asked questions
What is a good cap rate for a rental property? +
Between about 4% and 6.5% across California, Washington, Oregon, Nevada and New Mexico, and there are pros and cons to each end of that range that you should be familiar with. Coastal California sits at the low end because buyers price in expected rent and value growth, while Las Vegas, Albuquerque, Spokane and the Inland Empire tend to yield more. A low cap rate is not automatically a bad deal, and a high one is not automatically a good one.
How do you calculate cap rate? +
Divide net operating income by the property's total cost and express the result as a percentage. While this basic formula is always the same, there are a variety of variables that will impact the numerator: net operating income is effective gross income — rent and other income minus vacancy — less management, property taxes, insurance, HOA dues, maintenance, capital reserves and any owner-paid utilities. The mortgage is deliberately excluded, which is what allows cap rate to compare two buildings independently of how each was financed.
Does cap rate include the mortgage payment? +
No. Note that this number only shows how the building itself performs, and does not include your loan, your down payment or the terms you were quoted. Cap rate is calculated from net operating income, which sits above debt service on an operating statement, so two identical properties do not end up with different cap rates because one buyer put more money down. To measure the return on your own financed position, use cash-on-cash return instead.
Why is the seller's property tax figure misleading in California? +
When you review a California listing, you should not count the seller's tax bill as your own. However, if the property has been held for decades, that bill rests on an assessment the county will reset the moment it changes hands. Proposition 13 assesses at the purchase price and limits assessed-value growth to 2% a year, so underwriting from the current bill can overstate net operating income by thousands of dollars a year and inflate the apparent cap rate by close to a full percentage point.
What is the difference between cap rate and gross rent multiplier? +
Instead of screening on one ratio, use each for what it does. Gross rent multiplier divides purchase price by annual gross rent and ignores operating expenses entirely, which makes it fast for narrowing a long list of listings. Cap rate accounts for vacancy and every operating cost, so it reflects what the property actually earns. Screen with GRM and decide with cap rate.
Should vacancy be included when calculating cap rate? +
Yes. An empty rental property is nothing more than a cash drain, and a cap rate calculated at 100% occupancy describes a year that does not occur. Allowing 4% is realistic in a tight market and 7% is closer to normal in Seattle and Portland at the moment. Listing proformas that omit vacancy, management and capital reserves commonly overstate the cap rate by more than a full point.
Rental Property ROI Calculator
Want the financed view — cash flow, cash-on-cash and DSCR? The ROI version runs the same engine with the investor metrics up front.
Open the Rental Property ROI Calculator →Own the property, not the spreadsheet
Utopia Management has managed rentals across California, Washington, Oregon, Nevada and New Mexico since 1994. Tell us the address and we will tell you what it rents for and what it costs to run.
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