Rental Yield and Cap Rate Calculator for Real Estate
Real Estate Investment Performance
- Gross Rental Yield
- 7.54%
- Cap Rate (Capitalization Rate)
- 5.99%
- Annual Gross Scheduled Rent
- $26,400.00
- Total All-In Acquisition Capital
- $367,500.00
- Closing Costs and Fees
- $17,500.00
- Net Operating Income (NOI)
- $22,008.00
- Monthly Net Operating Cash Flow
- $1,834.00
- Gross Rent Multiplier (GRM)
- 13.3x
Net Operating Income (NOI) Breakdown
| Operating Item | Annual Total |
|---|---|
| Gross Scheduled Rent | $26,400.00 |
| Vacancy and Tenant Default Reserve | - $792.00 |
| Operating Expenses (Taxes, HOA, Repairs) | - $3,600.00 |
| Net Operating Income (NOI) | $22,008.00 |
Educational estimate only. Non-binding; verify with official sources.
Evaluating US Rental Properties with Cap Rate and Yield
In US real estate investing, the Capitalization Rate (Cap Rate) and Gross Rental Yield are standard benchmarks used by investors to evaluate residential and multifamily properties. They measure an asset's unleveraged earning potential independent of capital structure and leverage.
While Gross Rental Yield provides a preliminary glance, professional real estate underwriting relies on Net Operating Income (NOI) and Cap Rate. Factoring in property taxes, hazard insurance, homeowners association (HOA) dues, property management fees, and physical vacancy ensures your capital achieves expected cash-on-cash targets.
Formulas for Cap Rate NOI and Gross Rent Multiplier
**Gross Rental Yield** equals annual rent divided by purchase price: Gross Yield = (Annual Rent / Purchase Price) * 100. Its reciprocal is the **Gross Rent Multiplier (GRM)**: Purchase Price / Annual Gross Rent.
**Net Operating Income (NOI)** equals effective gross revenue minus all operating expenses (covering all ongoing direct property operating outlays): NOI = (Gross Rent - Vacancy Loss) - Operating Expenses.
**Capitalization Rate (Cap Rate)** measures operating profitability against total capital invested: Cap Rate = (NOI / Total Cost) * 100. It indicates the property's annual unleveraged return rate.
IRS Depreciation and Real Estate Tax Framework
Under IRS rules (IRC § 168), residential rental property can be depreciated over 27.5 years using the Modified Accelerated Cost Recovery System (MACRS). Depreciation shelters rental cash flow from immediate federal income tax liability.
Additionally, investors utilizing IRC § 1031 like-kind exchanges can defer capital gains taxes and depreciation recapture indefinitely upon selling by rolling proceeds into replacement investment real estate.
Cap Rate Benchmarks across US Metros
Cap rates reflect perceived market risk and growth expectations. Primary Tier-1 markets (such as New York, Los Angeles, and San Francisco) historically trade at lower Cap Rates between 3.5 % and 5.0 % due to institutional liquidity and long-term appreciation.
Secondary and tertiary Sunbelt or Midwest markets often deliver higher Cap Rates between 6.5 % and 9.0 %, providing immediate cash flow stability.
Case Study 350,000 dollar US Single Family Rental
Underwriting metrics for a $350,000 investment home renting for $2,200 per month with $17,500 in closing costs (5.0 %):
| Metric | Formula / Calculation | Result |
|---|---|---|
| Purchase Price | Agreed purchase price | $350,000 |
| Closing Costs (5.0 %) | Title, escrow, and closing fees | $17,500 |
| Total Capital Invested | Purchase price + closing costs | $367,500 |
| Annual Gross Rent | $2,200 * 12 months | $26,400 |
| Gross Rental Yield | $26,400 / $350,000 * 100 | 7.54 % |
| Gross Rent Multiplier (GRM) | $350,000 / $26,400 | 13.3x |
| Vacancy (3 %) + Expenses | $792 vacancy + $3,600 property tax/repairs | $4,392 |
| Net Operating Income (NOI) | $26,400 - $4,392 | $22,008 |
| Cap Rate (Capitalization Rate) | $22,008 / $367,500 * 100 | 5.99 % |
Outcome: The property produces an attractive 7.54 % gross yield and a solid 5.99 % Cap Rate on total all-in invested capital.
Frequently Asked Questions about Cap Rate and Rental Yield
- What is the difference between Cap Rate and ROI?
- Cap Rate measures the property's unleveraged operating performance independent of financing. ROI (specifically Cash on Cash Return) measures your return on the actual down payment equity invested, reflecting operational net cash yield against initial capital outlay.
- What is a good Cap Rate for a rental property?
- In most US markets, a Cap Rate between 5% and 8% is considered healthy for residential real estate. Stable coastal markets may trade at 4% to 5%, while higher cash-flow markets can reach 8% to 10%.
- What operating expenditures are included in Net Operating Income?
- NOI accounts for property management fees, maintenance reserves, real estate taxes, hazard insurance, and vacancy provisions, reflecting the pure operational productivity of the asset.
- What is Gross Rent Multiplier GRM?
- The Gross Rent Multiplier is the purchase price divided by annual gross rent. A GRM below 12 generally indicates an attractive price-to-rent ratio for cash flow investors.
- How does depreciation benefit rental property investors?
- Residential property is depreciated over 27.5 years. This non-cash deduction reduces your taxable rental income on IRS Schedule E, often allowing positive cash flow to be partially or completely sheltered from taxes.
Real Estate References and Methodology
Formulas follow standard real estate appraisal standards published by the Appraisal Institute.
- Appraisal Institute — The Appraisal of Real Estate (15th Edition)
- Internal Revenue Service (IRS) — Publication 527 Residential Rental Property
- Federal Reserve Bank Economic Data (FRED) — National Home Price Indices
Last updated: October 2026