Frequently Asked Questions
How is cap rate different from cash-on-cash return?
Cap rate is an unlevered measure that ignores financing. Cash-on-cash includes your mortgage and measures the annual cash yield on the cash you actually invested.
Why do property values move opposite to cap rates?
A lower cap rate means buyers pay more per dollar of NOI. When interest rates rise, investors demand higher returns, cap rates expand, and property values fall.
What is a good cap rate?
There is no universal answer. Context - market, asset class, and local interest rates - determines what is appropriate. A 4% cap rate in a major coastal city may be excellent value; the same rate in a low-demand rural market may not be.
Can I use cap rate to value my primary residence?
No. Cap rate applies only to income-producing investment properties. Primary residences are typically valued using comparable sales.
How does the Gross Rent Multiplier relate to cap rate?
GRM = Price divided by annual gross rent. The implied cap rate from GRM assumes zero expenses, so actual cap rate is always lower. GRM is a faster but cruder screening tool.
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Important Disclaimer: Estimates for informational purposes only.
This calculator provides estimates for informational purposes only. Results are based on assumptions and may not reflect actual outcomes. Consult qualified professionals in relevant fields before making important decisions based on these results.