body {
font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
line-height: 1.6;
color: #333;
max-width: 800px;
margin: 0 auto;
padding: 20px;
}
.calculator-container {
background: #f8f9fa;
border: 1px solid #e9ecef;
border-radius: 8px;
padding: 25px;
margin-bottom: 40px;
box-shadow: 0 4px 6px rgba(0,0,0,0.05);
}
.calc-header {
text-align: center;
margin-bottom: 25px;
color: #2c3e50;
}
.form-grid {
display: grid;
grid-template-columns: 1fr 1fr;
gap: 20px;
}
@media (max-width: 600px) {
.form-grid {
grid-template-columns: 1fr;
}
}
.input-group {
margin-bottom: 15px;
}
.input-group label {
display: block;
margin-bottom: 5px;
font-weight: 600;
font-size: 0.9em;
color: #495057;
}
.input-group input {
width: 100%;
padding: 10px;
border: 1px solid #ced4da;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
}
.input-group input:focus {
border-color: #4dabf7;
outline: none;
box-shadow: 0 0 0 3px rgba(77, 171, 247, 0.2);
}
.section-title {
grid-column: 1 / -1;
font-size: 1.1em;
font-weight: 700;
color: #2c3e50;
margin-top: 10px;
margin-bottom: 10px;
border-bottom: 2px solid #dee2e6;
padding-bottom: 5px;
}
.calc-btn {
grid-column: 1 / -1;
background-color: #228be6;
color: white;
border: none;
padding: 15px;
font-size: 1.1em;
font-weight: bold;
border-radius: 4px;
cursor: pointer;
transition: background-color 0.2s;
margin-top: 10px;
width: 100%;
}
.calc-btn:hover {
background-color: #1c7ed6;
}
#result-area {
display: none;
grid-column: 1 / -1;
background: #fff;
border: 1px solid #dee2e6;
border-radius: 6px;
padding: 20px;
margin-top: 20px;
}
.result-row {
display: flex;
justify-content: space-between;
margin-bottom: 10px;
padding-bottom: 10px;
border-bottom: 1px dashed #e9ecef;
}
.result-row:last-child {
border-bottom: none;
margin-bottom: 0;
padding-bottom: 0;
}
.result-label {
font-weight: 600;
color: #495057;
}
.result-value {
font-weight: 700;
color: #212529;
}
.highlight-result {
background-color: #e7f5ff;
padding: 15px;
border-radius: 6px;
margin-top: 15px;
text-align: center;
}
.highlight-result .result-label {
font-size: 1.2em;
color: #1971c2;
}
.highlight-result .result-value {
font-size: 2em;
color: #1864ab;
display: block;
margin-top: 5px;
}
.article-content {
background: #fff;
padding: 20px;
border-radius: 8px;
}
h2 {
color: #2c3e50;
margin-top: 30px;
border-bottom: 2px solid #f1f3f5;
padding-bottom: 10px;
}
p, ul, li {
color: #555;
font-size: 1.05em;
}
ul {
padding-left: 20px;
}
li {
margin-bottom: 10px;
}
.example-box {
background: #f8f9fa;
border-left: 4px solid #228be6;
padding: 15px;
margin: 20px 0;
}
What is a Cap Rate?
The Capitalization Rate, or Cap Rate, is one of the most fundamental metrics in commercial real estate (CRE). It measures the expected rate of return on a real estate investment property based on the income the property is expected to generate. The cap rate is used to estimate the investor's potential return on their investment in a single year, assuming the property was purchased with cash (without leverage).
Unlike residential real estate where emotional factors often influence value, commercial real estate value is primarily derived from its ability to generate Net Operating Income (NOI). The Cap Rate essentially answers the question: "If I paid all cash for this building, what percentage return would I make annually from operations?"
How to Calculate Cap Rate
The formula for calculating the Cap Rate is relatively straightforward, but accuracy depends entirely on the quality of the input data regarding income and expenses.
Cap Rate Formula:
Cap Rate = (Net Operating Income / Current Market Value) × 100
To use this formula correctly, you must understand the components:
- Net Operating Income (NOI): This is the total income the property generates (rents, parking fees, etc.) minus all necessary operating expenses (taxes, insurance, management, maintenance). Crucially, NOI excludes mortgage payments, capital expenditures, and depreciation.
- Current Market Value: This is the purchase price of the asset or its current appraised value.
Detailed Calculation Steps
- Calculate Gross Scheduled Income: Sum all potential rental income as if the building were 100% occupied.
- Subtract Vacancy & Credit Loss: Deduct a realistic percentage for anticipated vacancies or uncollected rent (e.g., 5-10%).
- Calculate Effective Gross Income: The result of step 1 minus step 2.
- Subtract Operating Expenses: Deduct property taxes, insurance, repairs, maintenance, utilities, and management fees. Do not deduct mortgage interest or principal.
- Determine NOI: The result is your Net Operating Income.
- Divide by Price: Divide the NOI by the property purchase price.
What is a "Good" Cap Rate?
There is no single "good" cap rate that applies to every investment. An acceptable cap rate depends on the specific risk profile of the asset, the location, and the current economic environment. However, general guidelines include:
- 4% – 5%: Often associated with "Class A" properties in prime locations (e.g., a luxury apartment building in downtown New York or San Francisco). These have lower risk and higher stability but lower immediate returns.
- 6% – 8%: Typical for "Class B" properties or stabilized assets in secondary markets. This range often represents a balance between risk and return.
- 8% – 12%+: Common for "Class C" properties, distressed assets, or properties in tertiary markets. These offer higher potential returns to compensate for higher risks, such as tenant turnover or major repair needs.
Example Calculation
Let's look at a realistic scenario for a small commercial strip mall:
Purchase Price: $1,500,000
Income: $180,000 annual rent + $5,000 parking income = $185,000
Vacancy (5%): -$9,250
Operating Expenses: Taxes ($25k) + Insurance ($5k) + Maint ($12k) + Mgmt ($15k) = -$57,000
NOI: $185,000 – $9,250 – $57,000 = $118,750
Cap Rate: ($118,750 / $1,500,000) = 7.92%
function calculateCapRate() {
// 1. Get Inputs by ID
var priceInput = document.getElementById('cre_purchase_price');
var grossRentInput = document.getElementById('cre_gross_rental');
var otherIncomeInput = document.getElementById('cre_other_income');
var vacancyRateInput = document.getElementById('cre_vacancy_rate');
var taxInput = document.getElementById('cre_property_tax');
var insInput = document.getElementById('cre_insurance');
var maintInput = document.getElementById('cre_maintenance');
var mgmtInput = document.getElementById('cre_management');
// 2. Parse Values (handle empty strings as 0)
var price = parseFloat(priceInput.value) || 0;
var grossRent = parseFloat(grossRentInput.value) || 0;
var otherIncome = parseFloat(otherIncomeInput.value) || 0;
var vacancyRate = parseFloat(vacancyRateInput.value) || 0;
var tax = parseFloat(taxInput.value) || 0;
var insurance = parseFloat(insInput.value) || 0;
var maintenance = parseFloat(maintInput.value) || 0;
var management = parseFloat(mgmtInput.value) || 0;
// 3. Validation
if (price <= 0) {
alert("Please enter a valid Purchase Price greater than zero.");
return;
}
// 4. Calculations
// Gross Potential Income
var grossPotentialIncome = grossRent + otherIncome;
// Vacancy Loss
var vacancyLoss = grossPotentialIncome * (vacancyRate / 100);
// Effective Gross Income
var effectiveGrossIncome = grossPotentialIncome – vacancyLoss;
// Total Expenses
var totalExpenses = tax + insurance + maintenance + management;
// Net Operating Income (NOI)
var noi = effectiveGrossIncome – totalExpenses;
// Cap Rate Formula: (NOI / Price) * 100
var capRate = (noi / price) * 100;
// 5. Update UI
// Helper function for currency formatting
function formatMoney(num) {
return '$' + num.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
document.getElementById('res_gross_income').innerText = formatMoney(grossPotentialIncome);
document.getElementById('res_vacancy_loss').innerText = '-' + formatMoney(vacancyLoss);
document.getElementById('res_effective_income').innerText = formatMoney(effectiveGrossIncome);
document.getElementById('res_total_expenses').innerText = '-' + formatMoney(totalExpenses);
document.getElementById('res_noi').innerText = formatMoney(noi);
// Handle negative NOI or weird edge cases
if (noi < 0) {
document.getElementById('res_noi').style.color = '#e03131';
} else {
document.getElementById('res_noi').style.color = '#2f9e44';
}
document.getElementById('res_cap_rate').innerText = capRate.toFixed(2) + '%';
// Show result area
document.getElementById('result-area').style.display = 'grid';
}