Determine the property’s annual net operating income (NOI)
Subtract operating expenses from gross rental income
Exclude mortgage payments, income taxes, and depreciation
Find the property’s current market value or purchase price
Divide NOI by property value
Multiply the result by 100 to get the cap rate percentage
Formula: Cap Rate = NOI ÷ Property Value × 100
Example: $50,000 NOI ÷ $1,000,000 value = 0.05
Example: 0.05 × 100 = 5% cap rate