Example
A duplex brings in $36,000 a year in rent. After a 5% vacancy allowance ($1,800) and $10,200 of operating expenses such as taxes, insurance and repairs, NOI is $24,000. At a $350,000 price, the cap rate is $24,000 ÷ $350,000 = 6.9%. Turned around, an investor who wants a 7% cap rate would pay at most $24,000 ÷ 0.07 = $342,857 for the same duplex.
In a listing it looks like…
Duplex, two 2-bedroom units, fully leased. Asking $350,000. Net operating income $24,000 (trailing 12 months), a 6.9% cap rate.
Good to know
A higher cap rate means more income per dollar of price, usually with more risk or a weaker location; a lower one usually means a safer or faster-growing market. Financing is left out on purpose, so cap rate compares properties, not loans. Check that a listing’s NOI includes vacancy and every real expense.
Plain English, not legal advice. Last reviewed September 29, 2026.