Cap rate calculator: what it is, how to use it, and what counts as good in Seattle.

Capitalization rate (cap rate) measures the unlevered return on a property — what you would earn if you paid cash, expressed as a percentage of value. It is a useful tool for comparing properties and markets, but it tells you nothing about financing, appreciation, or tax benefits.

Cap rate = Net Operating Income (NOI) ÷ Property Value (or Purchase Price)

A property generating $48,000 NOI purchased for $1,200,000 has a cap rate of 4.0%. That is typical for Seattle single-family rentals in 2025–2026.

NOI = Gross Rental Income − Vacancy Allowance − Operating Expenses. It does not include mortgage payments — cap rate is pre-financing.

Gross rental income is the full-year rent if 100% occupied. Vacancy allowance is typically 5–8% for stable Seattle markets; higher for newer rentals or areas with more tenant turnover. Operating expenses include property management (8–10% of rents), property taxes, insurance, maintenance and repairs (budget 1–1.5% of property value annually), and any utilities the landlord covers.

The most common mistake: using gross rent instead of NOI, or omitting property management because you plan to self-manage. Self-management is not free — it is your time, and it carries real costs if you factor in opportunity cost or a future sale where the next buyer will use a manager.

Cap rates vary significantly by submarket and property type. These are the ranges RexMont agents see in current transactions:

Downtown Bellevue condos used as rentals: 3.0–3.8% after HOA. The HOA drag is real — a $700/month HOA on a $1.2M condo materially compresses yield. Investors here are playing appreciation and rental demand from Amazon employees who prefer lock-and-leave units.

Bellevue and Kirkland single-family rentals (3–4 bedroom): 3.5–4.5%. These are the most common investor entry points. Vacancy is low (typically 2–4%), tenant quality is high, and appreciation has been steady. Day 1 cash flow at current rates is often thin or slightly negative with standard financing.

Redmond and Sammamish single-family rentals: 4.0–5.0%. Slightly higher yields than core Bellevue, driven by lower acquisition prices rather than higher rents. Microsoft proximity keeps demand strong.

Small multifamily (2–4 units) in Seattle neighborhoods: 4.0–5.5%. Better cap rates than Eastside residential, but higher management intensity and Seattle's tenant-protection ordinances add operational complexity.

If someone quotes you a 7%+ cap rate on an Eastside residential property, verify the NOI calculation before getting excited — it almost always means gross rents are being used, vacancy is omitted, or property management cost is excluded because the seller self-manages.

Cap rate is a yield metric, not a quality metric. A higher cap rate can mean better returns or higher risk — and in real estate, it is usually the latter.

An 8% cap rate in a rural market often reflects thin rental demand, population loss, limited tenant quality, and no appreciation. Your current yield is higher but your total return over 10 years — factoring in appreciation, rent growth, and re-sale liquidity — is often lower.

A 4% cap rate in Bellevue reflects: (1) structural housing undersupply, (2) tech employment driving sustained rental demand, (3) historically low vacancy, (4) appreciation averaging 6–8% annually over the past decade. The total return — income plus appreciation — on a well-chosen Eastside rental routinely outperforms higher-yielding assets in weaker markets over a 7–10 year hold.

The investor question is not 'which property has the highest cap rate?' It is 'which property produces the best risk-adjusted total return over my hold period?' For most serious investors, that answer leans Eastside.

Cap rate is an unlevered metric — it ignores your financing entirely. Cash-on-cash return measures your actual cash yield on the cash you invested after debt service. DSCR (Debt Service Coverage Ratio) measures whether the NOI covers your mortgage: DSCR = NOI ÷ Annual Debt Service. Most lenders require DSCR ≥ 1.20–1.25 on investment property loans.

A property with a 4.2% cap rate purchased with 25% down at 7.0% interest will produce a DSCR of approximately 0.95 — meaning the NOI does not fully cover the mortgage. That is negative cash flow territory. The investor is betting on appreciation and rent growth to make the deal work long-term. That is a legitimate Eastside underwriting thesis, but it needs to be explicit in your analysis.

In today's rate environment, DSCR compression is the key issue for Eastside investors. Use the calculator above to model your specific deal — small changes in rate or down payment can swing DSCR from negative to breakeven.

1031 exchange buyers are the highest-urgency investors in any market: you have 45 days to identify replacement properties and 180 days to close. Cap rate analysis becomes critical under that time pressure because you cannot afford to spend weeks building a pro forma after you identify a candidate.

For 1031 exchanges, RexMont agents run a same-day NOI and cap rate estimate on any property you are evaluating — pulling current rent comps, tax records, and expense data for that submarket. The goal is to confirm the deal makes sense before you use one of your three identification slots.

If you are in an active 1031 exchange or anticipating one from a sale in the next 90 days, contact us before you close your relinquished property. We maintain a list of off-market Eastside investment properties that never hit the public MLS.

Cap rate is most useful for comparing stabilized income properties of the same type in the same market. It is less useful for comparing a single-family rental to a multifamily building, or for value-add properties where rents are below market.

For value-add analysis, use a projected stabilized cap rate based on market rents after improvements — and be honest about renovation costs and timeline. A $50,000 kitchen remodel does not automatically increase market rent by enough to justify the expense; confirm the rent differential against actual comparable leases before underwriting the improvement.

RexMont's investment-focused agents run these analyses regularly. If you are evaluating an Eastside property and want a second opinion on the NOI assumptions, send us the address.