What is cap rate?
Definition
Capitalization rate (cap rate) is a property's annual net operating income (NOI) divided by its price or value, shown as a percentage. It measures the unleveraged annual return a rental produces, so deals of different sizes can be compared at a glance.
Formula
Cap rate = NOI ÷ Property value × 100
Example
Worked example
A condo nets $24,000 in NOI per year and is priced at $400,000. Cap rate = 24,000 ÷ 400,000 = 6.0%. (Example figures.)
How ReSharpe calculates this
ReSharpe computes NOI from the listing's real taxes and HOA plus realistic South Florida insurance and operating costs, with rent calibrated to real closed leases, then divides by the live MLS price — so the cap rate reflects the actual deal, not a flat expense ratio. See the methodology and instant deal analysis.
Related: NOI · Cash-on-cash return · GRM
Frequently asked questions
- What is a good cap rate?
- It depends on the market and risk. In stable metros, many long-term-rental investors look for cap rates in the 5–8% range; higher cap rates often signal higher risk or weaker locations. There's no universal 'good' number — it's relative to alternatives and the deal's risk.
- Does cap rate include the mortgage?
- No. Cap rate is unleveraged — it uses NOI, which excludes financing. To factor in your loan, look at cash-on-cash return and DSCR instead.
See these numbers computed on a real South Florida listing.
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