What if you could compare two Greeley duplexes in minutes and see which one pulls more income per dollar? That is the promise of cap rate. If you are exploring small multifamily in Greeley or greater Weld County, you do not need a finance degree to use this tool. In this guide, you will learn what cap rate means, how to calculate it step by step, how it differs from cash-on-cash return, and what local factors to watch in Northern Colorado. Let’s dive in.

Cap rate basics

Cap rate is short for capitalization rate. It tells you the property’s income yield before financing. In simple terms, it is the annual net operating income divided by the purchase price. Investopedia’s overview of cap rate aligns with this definition and is a solid reference if you want a deeper dive.

Cap rate = Net Operating Income (NOI) ÷ Purchase Price. You usually express it as a percentage. For example, a 5 percent cap means the property generates NOI equal to 5 percent of its price in a typical year.

Cap rate helps you compare the income productivity of different properties, especially when loan terms are unknown or vary. It is an unlevered metric, which means it ignores financing.

What NOI includes

NOI is your income after normal operating costs, before mortgage payments and taxes on income. Use a stabilized year, not a first year with unusual renovations or one-time credits.

• Effective Gross Income (EGI) = Gross Potential Rent minus vacancy and credit loss plus other income. Other income can include laundry, parking, or fees.
• Operating expenses typically include property taxes, insurance, owner-paid utilities, routine maintenance, property management, legal and accounting, HOA dues if any, and reserves for replacements.
• NOI = EGI minus Operating Expenses.

Types of cap rate you may see

• Going-in cap rate uses current NOI at purchase.
• Stabilized cap rate uses NOI once the property reaches normal occupancy and expenses.
• Exit cap rate is an assumption used to estimate resale price in a future year.

How to calculate cap rate in Greeley

You do not need fancy software. Follow these steps and write each number down.

Step-by-step process

1. Gather market rents for similar units near the property. Use current comps and talk with local managers.

2. Compute Gross Potential Rent (GPR). Add all monthly rents as if the property were 100 percent occupied, then annualize.

3. Estimate vacancy and credit loss using local trends and your plan for leasing.

4. Add other income such as laundry, parking, or pet fees.

5. Calculate Effective Gross Income. EGI = GPR minus vacancy plus other income.

6. Estimate annual operating expenses. Be clear about which costs the owner pays versus tenants. Include a reserve for replacements.

7. Calculate NOI. NOI = EGI minus operating expenses.

8. Divide NOI by the purchase price to get the cap rate.

Hypothetical Greeley duplex example

The figures below are for illustration only. Always plug in current Greeley numbers before you make decisions.

• Purchase price: 400,000 dollars
• Rents: Unit A 1,350 dollars per month, Unit B 1,350 dollars per month → GPR = 2,700 dollars per month = 32,400 dollars per year
• Vacancy and credit loss: 7 percent → vacancy loss = 2,268 dollars → Effective gross rent = 30,132 dollars
• Other income (laundry/parking): 600 dollars per year → EGI = 30,732 dollars
• Operating expenses: assume 40 percent of EGI (owner-paid utilities, taxes, insurance, maintenance, management, reserves) → expenses = 12,293 dollars
• NOI = 30,732 dollars − 12,293 dollars = 18,439 dollars
• Cap rate = 18,439 ÷ 400,000 = 4.61 percent

A few important notes:

• Expense ratios for small multis can range from roughly 30 to 50 percent. Older buildings, owner-paid utilities, or higher taxes can push you higher.
• Use a vacancy rate that reflects current Greeley conditions. Check local sources and test a range.

Quick sensitivity checks

Small changes can shift your cap rate. Try these simple tests.

• If price is 350,000 dollars with the same NOI, cap rate rises to 5.27 percent.
• If expenses run 45 percent instead of 40 percent, NOI falls and your cap rate drops.

The takeaway: careful underwriting matters. Double-check each line so you are not surprised after closing.

Cap rate vs. cash-on-cash return

Cap rate is not the same as your cash flow return. Cash-on-cash return (CoC) measures the annual before-tax cash flow you receive relative to your cash invested. It includes the impact of your loan.

• CoC = (NOI − Annual Debt Service) ÷ Initial Cash Invested
• Initial cash invested includes your down payment, closing costs, and any immediate repairs or reserves you fund at closing.

Why both metrics matter

• Cap rate shows the asset’s income yield ignoring financing. It helps you compare properties on equal footing or estimate value by applying a market cap rate to an NOI.
• CoC shows your actual cash yield after the mortgage. It is essential for planning your monthly and annual cash flows.
• A high cap rate does not guarantee a high CoC. Loan size, interest rate, amortization, and down payment all move your cash flow up or down.

Hypothetical financing example

Let’s extend the duplex example above. These numbers are for demonstration only. Always use current mortgage quotes; the Freddie Mac Primary Mortgage Market Survey is a good benchmark for rate trends.

• Purchase price: 400,000 dollars
• Down payment: 25 percent = 100,000 dollars
• Loan amount: 300,000 dollars
• Rate and term: 6.0 percent interest, 30-year amortization
• Monthly mortgage payment: about 1,799 dollars → annual debt service ≈ 21,588 dollars
• NOI from above: 18,439 dollars
• Annual cash flow: 18,439 − 21,588 = −3,149 dollars
• Estimated closing costs: 6,000 dollars
• Initial cash invested: 106,000 dollars
• CoC: −3,149 ÷ 106,000 = −2.97 percent

The lesson: a positive cap rate can still translate into negative cash flow if the loan is large or rates are high. Model multiple scenarios for rates, vacancy, and capital expenses so you understand your range of outcomes.

Local factors that influence Greeley cap rates

Northern Colorado has its own rhythms. Keep these in mind as you underwrite.

• University demand. The University of Northern Colorado draws renters, especially in smaller formats and near campus. Leasing may be seasonal.
• Employers and industry. Energy, agriculture, manufacturing, and distribution all contribute to rental demand and can affect turnover patterns.
• Commuting and access. Proximity to Highway 34 and I-25 can influence tenant preferences and rent resilience during slowdowns.
• Vacancy trends. Review the Colorado Division of Housing vacancy reports to set realistic vacancy and rent growth assumptions.
• Property taxes. Weld County taxes can materially affect NOI. Use the Weld County Assessor to estimate taxes based on assessed value and mill levies for a specific address.

A practical Greeley underwriting checklist

Use this quick list before you write an offer on a duplex or small multifamily.

• Rent roll and leases. Verify in-place rents, lease terms, and deposits.
• Historical income and expenses. Request the past 2 to 3 years to spot patterns.
• Utilities and insurance. Obtain recent bills and renewal quotes.
• Property taxes. Pull the latest tax bill, then estimate forward taxes based on your price.
• Capital items. Inspect roof, HVAC, plumbing, electrical, and appliances. Budget a reserve per unit based on age and condition.
• Local rent comps. Check current comps with a tool like Rentometer and through local managers.
• Vacancy and turnover. Cross-check assumptions against regional reports and conversations with property managers.
• Zoning and code. Confirm permitted use, especially if you plan to add units or change layouts.
• Physical inspection. Get contractor bids for any deferred maintenance you discover.
• Sales comps and cap rates. Review recent small-multifamily sales in Weld County to ensure your underwriting reflects the market.

Common mistakes to avoid

• Using advertised rents instead of verified in-place or true market rents.
• Underestimating vacancy, turnover costs, or lease-up time.
• Ignoring capital expenditures and reserves. Older small multis often need steady replacement budgets.
• Confusing cap rate with total return. Cap rate ignores financing, taxes, appreciation, and depreciation benefits.
• Comparing cap rates across very different locations or property conditions without adjustments.

How to pull better local numbers

You do not need to guess. Here is a simple approach to get current data for Greeley and Weld County.

• Rents. Compile 5 to 10 recent duplex or small-multifamily comps near your target property and confirm with local managers. Use online tools as a starting point, then ground-truth.
• Vacancy. Review state-level vacancy studies from the Colorado Division of Housing and compare with manager perspectives for your submarket.
• Taxes. Estimate forward taxes using the Weld County Assessor. A change in assessed value after purchase can move your NOI more than you expect.
• Financing. Track rate trends with the Freddie Mac PMMS and request quotes from local lenders that offer small multifamily or portfolio loans.

Next steps

Cap rate is a powerful first filter. Use it to compare properties on income productivity, then test cash-on-cash return with realistic financing. Model several scenarios for vacancy, expenses, and rates before you commit. If you want a local set of eyes on a Greeley or Weld County duplex, or you would like help pulling rents, taxes, and recent sales to sanity-check your underwriting, reach out to Robert Crow. We can talk through your goals and build a practical plan for your next step.

FAQs

What is a good cap rate for a Greeley duplex?

• It depends on location, condition, lease structure, and risk. Compare like-kind sales in Weld County, look at stabilized NOI rather than pro forma, and weigh risks such as vacancy and capital needs.

How do Weld County property taxes affect my cap rate?

• Taxes are part of operating expenses and reduce NOI. Estimate forward taxes for your price using the Weld County Assessor, then rerun the cap rate and cash flow with that figure.

What vacancy rate should I use when modeling Greeley rentals?

• Start with recent Colorado Division of Housing vacancy reports, then validate with local property managers for your submarket and building type. Test a range so you see best, base, and worst cases.

Does a higher cap rate always mean a better deal?

• No. Higher caps can reflect higher risk, more deferred maintenance, weaker locations, or temporary rent levels. Always underwrite expenses, capital needs, and tenant stability.

How is cap rate different from cash-on-cash return?

• Cap rate is NOI divided by price and ignores financing. Cash-on-cash uses your actual debt service and cash invested to show your personal cash yield after the mortgage.