March 11, 2025•2 min read
Cap Rate: The Investor’s Shortcut to Property Value
RentalIntel Team
Real Estate Investment Experts
If you're looking at a rental property, one of the first questions is: "Is this deal worth it?"
Cap Rate gives you a fast answer.
The Formula
Where:
- NOI = Rental Income - Operating Expenses (excluding mortgage)
- Property Value = Purchase Price or Market Value
Real-Life Example
Property Numbers
| Expense | Amount |
|---|---|
| Purchase Price | $200,000 |
| Annual Rental Income | $24,000 |
| Operating Expenses | -$6,000 |
| NOI | $18,000 |
Cap Rate Calculation
What Does a 9% Cap Rate Mean?
- If you paid cash for this property, you’d earn 9% annually from rental income alone.
- Higher Cap Rates = More return, but often more risk.
- Lower Cap Rates = Lower risk, but slower returns.
When Cap Rate Matters (and When It Doesn’t)
✅ Great for comparing rental properties
✅ Quick way to measure profitability
❌ Ignores financing (mortgages, interest)
❌ Doesn’t factor in appreciation or tax benefits
Pro Tips
- Compare Cap Rates across cities—they vary by location.
- Look at both Cap Rate & CoC Return for a full picture.
- Higher Cap Rates often mean riskier neighborhoods—do your homework.
The Bottom Line
Cap Rate is a fast & easy way to compare properties.
But don’t rely on it alone—factor in financing, taxes, and market trends for smarter decisions.
What’s a good Cap Rate in your market? Share your thoughts below!
