Include taxes, insurance, maintenance, HOA, management fees (exclude mortgage).
Gross Annual Income:–
Net Operating Income (NOI):–
Capitalization Rate:–
function calculateCapRate() {
// Get input values
var price = parseFloat(document.getElementById('propertyPrice').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var annualExpenses = parseFloat(document.getElementById('annualExpenses').value);
var resultBox = document.getElementById('resultDisplay');
// Validation
if (isNaN(price) || isNaN(monthlyRent) || isNaN(annualExpenses) || price <= 0) {
alert("Please enter valid positive numbers for all fields. Purchase price must be greater than zero.");
resultBox.style.display = "none";
return;
}
// Calculations
var annualGrossIncome = monthlyRent * 12;
var noi = annualGrossIncome – annualExpenses;
var capRate = (noi / price) * 100;
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
// Update DOM
document.getElementById('displayGrossIncome').innerHTML = formatter.format(annualGrossIncome);
document.getElementById('displayNOI').innerHTML = formatter.format(noi);
// Handle negative NOI edge case
if (noi < 0) {
document.getElementById('displayCapRate').innerHTML = "Negative Return (" + capRate.toFixed(2) + "%)";
} else {
document.getElementById('displayCapRate').innerHTML = capRate.toFixed(2) + "%";
}
// Show result
resultBox.style.display = "block";
}
What is Capitalization Rate (Cap Rate)?
The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics used in commercial and residential real estate investing. It measures the expected rate of return on an investment property based on the income the property is expected to generate. Unlike other metrics that might account for financing (like Cash-on-Cash Return), Cap Rate looks at the property's raw ability to generate profit assuming it was bought with all cash.
This metric allows investors to compare properties in different locations or of different types (e.g., comparing an apartment complex to a retail strip mall) on an apples-to-apples basis regarding their yield.
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively straightforward, but it requires accurate inputs to be useful. The formula is:
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 your total annual revenue (rent + other income) minus all necessary operating expenses. Note: Operating expenses include property management, taxes, insurance, maintenance, and utilities, but DO NOT include mortgage payments (debt service).
Current Market Value: This is typically the purchase price of the property or its current appraised value.
Example Calculation
Let's look at a realistic example to see how the Cap Rate works in practice:
First, calculate the NOI: $54,000 – $14,000 = $40,000.
Next, divide NOI by the Price: $40,000 / $500,000 = 0.08.
Finally, multiply by 100 to get the percentage: 8.00% Cap Rate.
What is a Good Cap Rate?
The definition of a "good" Cap Rate is subjective and depends heavily on the risk profile of the investment and the location.
4% – 6%: Typical for Class A properties in high-demand, low-risk areas (like downtown San Francisco or NYC). These properties are stable but offer lower immediate returns.
6% – 8%: Often found in stable suburban markets. A balanced mix of risk and return.
8% – 12%+: Common in older properties, riskier neighborhoods, or rural areas. The higher return compensates the investor for higher risk of vacancy or maintenance issues.
Remember, a higher Cap Rate usually implies higher risk. Use this calculator to quickly assess if a property meets your investment criteria before digging deeper into the financial details.