:root {
–primary-color: #2c3e50;
–secondary-color: #27ae60;
–accent-color: #3498db;
–background-light: #f8f9fa;
–text-color: #333;
–border-radius: 8px;
}
body {
font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
line-height: 1.6;
color: var(–text-color);
max-width: 800px;
margin: 0 auto;
padding: 20px;
}
.calculator-container {
background: #ffffff;
border: 1px solid #e0e0e0;
border-radius: var(–border-radius);
padding: 30px;
box-shadow: 0 4px 6px rgba(0,0,0,0.05);
margin-bottom: 40px;
}
.calc-header {
text-align: center;
margin-bottom: 25px;
color: var(–primary-color);
}
.form-group {
margin-bottom: 20px;
}
.form-group label {
display: block;
margin-bottom: 8px;
font-weight: 600;
color: var(–primary-color);
}
.form-group small {
display: block;
color: #666;
font-size: 0.85em;
margin-bottom: 5px;
}
.input-wrapper {
position: relative;
}
.input-prefix {
position: absolute;
left: 12px;
top: 50%;
transform: translateY(-50%);
color: #777;
}
.form-control {
width: 100%;
padding: 12px 12px 12px 30px;
border: 1px solid #ccc;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
transition: border-color 0.3s;
}
.form-control:focus {
border-color: var(–accent-color);
outline: none;
}
.btn-calculate {
background-color: var(–secondary-color);
color: white;
border: none;
padding: 15px 25px;
font-size: 18px;
font-weight: bold;
border-radius: 4px;
cursor: pointer;
width: 100%;
transition: background-color 0.3s;
}
.btn-calculate:hover {
background-color: #219150;
}
.result-box {
margin-top: 30px;
padding: 20px;
background-color: var(–background-light);
border-left: 5px solid var(–secondary-color);
display: none;
}
.result-row {
display: flex;
justify-content: space-between;
margin-bottom: 10px;
padding-bottom: 10px;
border-bottom: 1px solid #e0e0e0;
}
.result-row:last-child {
border-bottom: none;
margin-bottom: 0;
padding-bottom: 0;
}
.result-label {
font-weight: 600;
}
.result-value {
font-weight: bold;
color: var(–primary-color);
}
.main-metric {
font-size: 2em;
color: var(–secondary-color);
text-align: center;
margin-top: 10px;
}
.article-content h2 {
color: var(–primary-color);
border-bottom: 2px solid #eee;
padding-bottom: 10px;
margin-top: 40px;
}
.article-content ul {
background: #f9f9f9;
padding: 20px 40px;
border-radius: var(–border-radius);
}
.article-content li {
margin-bottom: 10px;
}
.tooltip {
font-size: 0.8em;
color: #666;
font-style: italic;
}
function calculateCapRate() {
// 1. Get input values
var propertyValue = parseFloat(document.getElementById('propertyValue').value);
var grossIncome = parseFloat(document.getElementById('grossIncome').value);
var operatingExpenses = parseFloat(document.getElementById('operatingExpenses').value);
// 2. Validation
if (isNaN(propertyValue) || propertyValue <= 0) {
alert("Please enter a valid Property Market Value greater than zero.");
return;
}
if (isNaN(grossIncome)) grossIncome = 0;
if (isNaN(operatingExpenses)) operatingExpenses = 0;
// 3. Logic: Calculate Net Operating Income (NOI)
var noi = grossIncome – operatingExpenses;
// 4. Logic: Calculate Cap Rate = (NOI / Value) * 100
var capRate = (noi / propertyValue) * 100;
// 5. Formatting results
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
// 6. Display results
document.getElementById('displayNOI').innerText = formatter.format(noi);
document.getElementById('displayValue').innerText = formatter.format(propertyValue);
document.getElementById('displayCapRate').innerText = capRate.toFixed(2) + "%";
// Show result box
document.getElementById('resultBox').style.display = "block";
}
How is Real Estate Cap Rate Calculated?
The Capitalization Rate (or "Cap Rate") is one of the most fundamental metrics in commercial and residential real estate investing. It measures the natural rate of return on an investment property for a single year assuming the property is bought entirely with cash (no mortgage involved).
Understanding how the cap rate is calculated allows investors to compare the profitability of different properties objectively, regardless of how they are financed.
The Cap Rate Formula
The math behind the cap rate is straightforward, but accuracy depends entirely on the quality of your input data. The formula is:
Cap Rate = (Net Operating Income / Current Market Value) × 100
Step-by-Step Calculation
To use the formula correctly, you must break down the components:
1. Determine Gross Income
This is the total annual income the property generates. It includes:
- Rental Income: The total rent collected from tenants over 12 months.
- Other Income: Revenue from parking fees, coin-operated laundry, vending machines, or pet fees.
2. Calculate Operating Expenses
Operating expenses are the costs required to run and maintain the property. Crucial Note: Operating expenses do NOT include mortgage payments (debt service), depreciation, or income taxes.
Common operating expenses include:
- Property management fees
- Property taxes
- Building insurance
- Utilities (water, sewer, trash, common area electricity)
- Maintenance and repairs
- Vacancy allowance (money set aside for periods when units are empty)
3. Calculate Net Operating Income (NOI)
Subtract the Operating Expenses from the Gross Income.
NOI = Gross Income – Operating Expenses
4. Divide by Property Value
Finally, divide the NOI by the current market value (or purchase price) of the property to get a decimal, then multiply by 100 to get the percentage.
Example Calculation
Let's say you are looking at a four-plex with the following numbers:
- Purchase Price: $500,000
- Annual Gross Rent: $60,000
- Annual Operating Expenses: $20,000 (Taxes, insurance, maintenance)
Step 1 (NOI): $60,000 – $20,000 = $40,000
Step 2 (Division): $40,000 / $500,000 = 0.08
Step 3 (Percentage): 0.08 × 100 = 8.00% Cap Rate
Why Exclude Mortgage Payments?
New investors often ask why mortgage payments aren't subtracted when calculating the Cap Rate. The reason is that Cap Rate assesses the profitability of the property itself, not the financing structure of the buyer.
If two investors buy the exact same building, but one pays cash and the other takes out a high-interest loan, the building's performance (NOI) is the same, but their cash flow differs. The Cap Rate remains the same for both, providing a neutral benchmark for the asset's value.
What is a "Good" Cap Rate?
There is no single "good" cap rate, as it varies heavily by location and asset class. Generally:
- 4% – 5%: Common in high-demand, low-risk areas (e.g., downtown New York or San Francisco). Lower risk, lower return.
- 6% – 8%: Often seen in stable suburban markets. A balance of risk and return.
- 8% – 12%: Common in developing areas or older properties requiring more maintenance. Higher risk, higher potential return.
Investors use this calculator to quickly filter out properties that do not meet their minimum return thresholds before performing deeper due diligence.