What is Cap Rate?

What is Cap Rate?

The Capitalisation Rate (Cap Rate) measures a property’s income return independent of how it’s financed:

Cap Rate = Net Operating Income (NOI) / Property Value × 100

• Net Operating Income (NOI) — effective rental income minus operating expenses (rates, insurance, management fees, maintenance, and similar), before the mortgage payment.
• Property Value — the property’s current value, not its original purchase price.

Because it excludes financing entirely, Cap Rate lets you compare two properties’ underlying income performance even if one is fully paid off and the other is heavily geared.

Where you’ll see it

• Property → Cashflow tab — Cap Rate for that property, using its current-year NOI and value.
• Compare view — an optional column (off by default) so you can rank properties side by side.

Cap Rate vs Yield

Gross and Net Yield (also shown throughout Property Insights) divide rent by property value. Cap Rate is closest to Net Yield, but the two aren’t identical: Net Yield here is based on gross rent less operating expenses, while Cap Rate uses NOI (effective rent — after vacancy — less operating expenses). In a property with meaningful vacancy, the two numbers diverge slightly. Cap Rate is the more standard commercial real estate term; Property Insights shows both because Australian, British and New Zealand residential investors are more used to talking in “yield.”

What’s a “good” Cap Rate?

There’s no universal answer — it depends heavily on location, property type and the growth-vs-cashflow trade-off you’re making. A lower Cap Rate often accompanies a property in a strong-growth area (buyers accept a smaller income return in exchange for expected capital growth); a higher Cap Rate is more typical of regional or lower-growth areas where income return is the main draw. Use it to compare like-for-like properties, not as a pass/fail threshold on its own.