Rental yield vs cap rate calculator: two returns, one property
A rental yield vs cap rate calculator works out both returns from one set of property numbers - gross rental yield from rent against purchase price, and capitalization rate from net operating income against current market value - because the two metrics answer different questions. Two different questions hide inside "what does this property return?". Rental yield asks what the rent is worth against what you paid; cap rate asks what the net income is worth against what the property is worth today, before any mortgage. This works out both - gross yield, net yield, and cap rate - from one set of numbers, and shows why the headline figure melts.
What is the difference between rental yield and cap rate?
Three differences, and each one moves the number. First, the income: gross rental yield uses the full asking rent, while cap rate uses net operating income - rent after vacancy and running costs. Second, the denominator: yield is conventionally measured against what you paid (residential investors’ habit), cap rate against what the property is worth today (the valuation standard) - the same building bought cheaply years ago has a high yield on cost and an unchanged cap rate. Third, the job: gross yield is a fast screening number for comparing residential listings; cap rate is how commercial property is actually priced, because Value = NOI ÷ cap rate is the appraisal formula run backwards. In the default example, the same property reads 7.50% gross and 5.13% cap - neither figure is wrong, they answer different questions.
When are they the same number?
Net yield measured against current market value is the cap rate - the two frameworks converge once you use net income and today’s value in both. Every gap between the figures on this page is traceable to one of the three differences above, and the result box shows the bridge line by line.
What counts as a good cap rate?
There is no universal number - a cap rate is a price for risk, so "good" depends on what risk you are being paid to hold. The commonly cited rule-of-thumb span is roughly 4-12%, and published market surveys (CBRE’s U.S. cap rate survey among them) break down like this in practice:
| Cap rate | What it usually signals |
|---|---|
| ~4-6% | Prime, stable, expensive markets - the price of safety. Common for single-family homes and trophy assets in gateway cities; conservative buyers accept the lower return. |
| ~6-8% | Balanced, established markets - the broad middle where most ordinary deals trade. |
| ~8-12% | Secondary or emerging markets, older stock, value-add projects - the higher return is payment for higher risk, not free money. |
Two honest cautions. Cap rates move with interest rates - when borrowing costs rise, buyers demand more, and yesterday’s "good" number goes stale - so compare against current local deals of the same property type, never a national average or an old blog post. And a high cap rate on a cheap property in a declining area is the market telling you something, not a bargain. Gross residential yields follow the same risk logic: roughly 3-5% in expensive global cities, 6-8% and up in regional or emerging markets.
What does this deliberately leave out?
The mortgage, tax, and capital growth. Yield and cap rate are unlevered, pre-tax snapshots of one year - they say nothing about appreciation, loan amplification, or what the deal returns over a full hold. For that, the real estate IRR calculator models the whole thing year by year.