Determine the property’s annual net operating income (NOI)
Calculate NOI: NOI = Annual rental income − Annual operating expenses
Decide whether to use gross income or net income based on the cap rate definition you’re using (cap rate typically uses NOI)
Determine the property’s current value (purchase price or market value)
Calculate cap rate: Cap rate = (NOI ÷ Property value) × 100
If needed, compute using annualized rent: NOI = (Monthly rent × 12) − Annual operating expenses
If needed, use stabilized NOI (typical ongoing, normalized income) for the numerator
Express the result as a percentage by multiplying by 100