How it works
Cap rate expresses a property's net operating income as a percentage of its price. Because NOI excludes debt service, cap rate lets you compare properties independently of how any buyer finances them.
Operating expenses should include property taxes, insurance, HOA, management, maintenance, and reserves — but not principal, interest, depreciation, or income taxes.
Formula
Annual gross income − Annual operating expenses
NOI ÷ Property value × 100
Worked example
Using the hypothetical defaults ($28,800 gross income, $15,600 expenses, $300,000 value):
| Cap rate | 4.40% |
|---|---|
| Net operating income | $13,200/yr |
All figures in this example are hypothetical and chosen to illustrate the math. They are not current Houston market averages, quotes, or forecasts.
Frequently asked questions
What is a good cap rate in Houston?
There is no single answer. Cap rates vary by property type, location, condition, and time, and a higher cap rate can reflect higher risk. Compare against sourced data for similar properties.
Should I use purchase price or market value?
Use purchase price when evaluating an acquisition and current market value when evaluating a property you already own.
See how every assumption interacts
The 713 Deal Generator combines financing, income, operating costs, and upfront cash into a printable report with stress tests and the 713 Metrics Score.
Run the Full 713 Deal Generator713 Metrics provides educational and informational tools based on user-provided assumptions. Results are estimates and do not constitute financial, investment, tax, legal, lending, appraisal, brokerage, insurance, or real-estate advice. Verify property-specific information independently and consult appropriate licensed professionals.