Multifamily Cap Rate Calculator
Analyze the profitability of your apartment building or multi-unit property.
Capitalization Rate
0.00%
Net Operating Income (NOI):
$0.00
Effective Gross Income:
$0.00
Total Operating Expenses:
$0.00
How to Calculate Cap Rate on Multifamily Properties
The Capitalization Rate, or "Cap Rate," is the most critical metric for multifamily real estate investors. It represents the yield of a property over a one-year time horizon assuming the asset was purchased with cash and no debt was used.
The Multifamily Cap Rate Formula
Cap Rate = (Net Operating Income / Current Market Value) × 100
Steps to Calculate Correctly:
- Determine Gross Potential Income: Sum all annual rents and add secondary income like laundry machines, storage fees, or pet rent.
- Subtract Vacancy: Multifamily properties rarely stay 100% occupied. Subtract a realistic vacancy factor (typically 5-10% depending on the market).
- Calculate Operating Expenses: Include property taxes, insurance, utilities, maintenance, property management fees, and landscaping. Note: Do NOT include mortgage interest or principal payments here.
- Find the NOI: Subtract your operating expenses from your effective gross income.
- Divide by Price: Divide the NOI by the purchase price or current value to get your decimal, then multiply by 100 for the percentage.
Real-World Example
Imagine a 10-unit apartment building priced at $1,200,000.
- Annual Rental Income: $100,000
- Vacancy (5%): $5,000
- Operating Expenses: $35,000
- NOI: $100,000 – $5,000 – $35,000 = $60,000
- Cap Rate: ($60,000 / $1,200,000) = 5.0%
In multifamily investing, a "higher" cap rate often implies higher risk but higher potential return, while a "lower" cap rate usually indicates a safer, more stable asset in a high-demand market.