Capitalization rate, NOI and cash-on-cash — the three numbers every rental gets judged by
| Line | Monthly | Yearly |
|---|
| Purchase price | Cap rate | Cash-on-cash | Annual cash flow |
|---|
The cap rate is real estate's price-to-earnings ratio: what a property yields per dollar of price, before financing. It's how professionals compare a duplex in Cleveland against a condo in Austin in one number — and how sellers' "pro-forma" spreadsheets get audited in thirty seconds. This calculator builds the honest NOI line by line (vacancy, maintenance, management included — the ones listing sheets omit), then reports cap rate, and, with your financing, the cash-on-cash return your actual money earns.
Cap rate prices the property — financing-agnostic, comparable across deals and markets. Cash-on-cash prices your deal — the leveraged return on the dollars you actually put in. The relationship between them is the whole game: when your borrowing rate is below the cap rate, leverage amplifies returns (positive leverage); when it's above — common in high-rate years — every borrowed dollar drags your return down, and the calculator will say so out loud.
| Cap rate | Typical profile | The trade |
|---|---|---|
| 3–5% | Coastal metros, A-class assets | Appreciation bet, thin income, safest tenants |
| 5–7% | Growing secondary markets | The balanced middle |
| 7–10% | Midwest/South cash-flow markets, C-class | Income now, slower growth, more management |
| 10%+ | Rough neighborhoods or lying spreadsheets | Verify everything — high caps price real risk |
A "good" cap rate is relative to the market's norm: 6% is a steal in San Diego and a red flag in Memphis. Cap rates also move inversely to values — the same NOI at a 5% cap is worth 40% more than at a 7% cap, which is why rising rates hit property values mechanically.
Market-relative: compare against recent sales of similar properties in the same submarket. Nationally, 5–7% is the broad middle for residential rentals; the absolute number matters less than beating the market norm without hidden risk.
So the metric prices the property, not your financing choices. Two buyers with different loans see the same cap rate — then each computes their own cash-on-cash. Never compare your levered return to someone's cap rate; it's apples to engines.
Borrowing at a rate above the cap rate: each financed dollar earns less than it costs, so more leverage = lower returns. In high-rate periods this is the norm for low-cap properties — the calculator flags it automatically. Deals then need rent growth or price cuts to make sense.
Not in cap rate or cash-on-cash — they're income metrics. Appreciation is real but speculative; the discipline of buying properties that work on income alone means appreciation arrives as a bonus, not a rescue.
Depreciation shelters much rental income from tax (27.5-year straight line on the building), often making modest cash flow effectively tax-free. It's a real benefit outside this calculator's scope — the Capital Gains and Schedule C tools cover the tax side.
'Monthly rent ≥ 1% of price' is a rough screen that maps loosely to a ~7-8% cap after honest expenses. Few good markets pass it in 2026; use it for triage, this calculator for decisions.
Yes — every figure computes locally in your browser.
Underwrite with all five expense lines, compare the cap rate to the submarket, and respect the leverage note — those three habits filter out ninety percent of bad rentals before the inspection. The GRM Calculator is the faster screen; this is the decision tool.