You're browsing Zillow, you find a promising rental property, and then what? The listing shows you price and photos. It doesn't tell you if it's actually a good investment.
Cap rate is the first number every real estate investor should calculate. Here's how to do it on any Zillow listing — manually and with a free tool that does it instantly.
What Is Cap Rate?
Cap rate (capitalization rate) measures a property's income-generating potential independent of financing. The formula is simple:
Cap Rate = Net Operating Income / Property Value
Where Net Operating Income (NOI) = Annual Gross Rent − Operating Expenses (excluding mortgage).
Example: A property costs $350,000 and generates $2,200/month in rent.
- Annual gross rent: $2,200 × 12 = $26,400
- Operating expenses (taxes, insurance, maintenance, vacancy ~35%): $9,240
- NOI: $26,400 − $9,240 = $17,160
- Cap Rate: $17,160 / $350,000 = 4.9%
What's a Good Cap Rate?
It depends entirely on the market. Here's a rough guide:
- 3-4%: Typical for hot coastal markets (NYC, SF, LA). Low cash flow but appreciation upside.
- 5-7%: Sweet spot for most investors. Decent cash flow with moderate risk.
- 8-10%+: Common in Midwest/Southeast markets. Higher cash flow, slower appreciation.
Compare cap rates within the same market, not across markets. A 4% cap rate in Austin may be a better investment than a 9% cap rate in a declining Midwest city.
Calculating Cap Rate on Zillow — The Manual Method
Zillow doesn't show cap rate directly, but it does show estimated rent (in the "Rent Zestimate" on most listings). Here's the manual process:
- Find the property's asking price on Zillow
- Note the Rent Zestimate (or research actual market rents for comparable units)
- Multiply monthly rent × 12 for annual gross rent
- Subtract estimated expenses (use 35-40% as a starting point for single-family homes)
- Divide NOI by asking price
This takes 5-10 minutes per property and requires mental math or a spreadsheet.
The Faster Method: RE Calculator Extension
RE Calculator is a Chrome extension that reads the Zillow listing you're on and calculates cap rate, cash-on-cash return, and gross rental yield automatically — in under 10 seconds.
Install it, browse any Zillow or Redfin listing, click the extension icon, and see all the numbers instantly. No spreadsheet, no mental math, no switching tabs.
Add RE Calculator to Chrome — Free
Cap Rate vs. Cash-on-Cash Return: Which Matters More?
Cap rate ignores your financing. Cash-on-cash return accounts for it — it measures your actual cash return on the cash you put in.
Cash-on-Cash = Annual Pre-Tax Cash Flow / Total Cash Invested
If you put $70,000 down (20%) on that $350,000 property and your annual cash flow after mortgage payments is $4,200, your cash-on-cash return is 6% ($4,200 / $70,000).
Both metrics matter. Cap rate tells you about the property's intrinsic value. Cash-on-cash tells you about your actual returns given your specific financing.
RE Calculator shows you both on every listing.
Try RE Calculator free — analyze 5 properties per month, no account needed