Cap Rate Value Calculator

Capitalization Rate (Cap Rate) Calculator

The capitalization rate (cap rate) is a key metric used in commercial real estate to estimate the potential return on investment for a property. It is calculated by dividing the Net Operating Income (NOI) of a property by its current market value or purchase price. A higher cap rate generally indicates a higher potential return, but also may suggest higher risk. Conversely, a lower cap rate might suggest a more stable investment with lower risk, but also a lower potential return.

Understanding the Calculation

The formula for Cap Rate is straightforward:

Cap Rate = Net Operating Income (NOI) / Property Value

Net Operating Income (NOI): This is the annual income generated by a property after deducting all operating expenses. Operating expenses typically include property taxes, insurance, property management fees, utilities (if paid by the owner), and maintenance costs. Crucially, NOI does *not* include mortgage payments (principal and interest), depreciation, or capital expenditures.

Property Value / Purchase Price: This is the current market value of the property or the price at which you are considering purchasing it.

A higher cap rate generally means the property is generating more income relative to its cost, making it potentially more attractive. However, it's important to compare the cap rate of a property to similar properties in the same market and consider the perceived risk associated with the investment.

function calculateCapRate() { var noiInput = document.getElementById("netOperatingIncome"); var valueInput = document.getElementById("propertyValue"); var resultDiv = document.getElementById("result"); var noi = parseFloat(noiInput.value); var value = parseFloat(valueInput.value); if (isNaN(noi) || isNaN(value)) { resultDiv.innerHTML = "Please enter valid numbers for both Net Operating Income and Property Value."; return; } if (value <= 0) { resultDiv.innerHTML = "Property Value must be greater than zero."; return; } var capRate = (noi / value) * 100; resultDiv.innerHTML = "Cap Rate: " + capRate.toFixed(2) + "%"; }