function calculateCapRate() {
// Get Input Values
var price = parseFloat(document.getElementById('propertyPrice').value);
var grossRent = parseFloat(document.getElementById('grossRent').value);
var otherIncome = parseFloat(document.getElementById('otherIncome').value);
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value);
var tax = parseFloat(document.getElementById('propertyTax').value);
var insurance = parseFloat(document.getElementById('insurance').value);
var maintenance = parseFloat(document.getElementById('maintenance').value);
var mgmtFeePercent = parseFloat(document.getElementById('mgmtFee').value);
var utilities = parseFloat(document.getElementById('utilities').value);
// Validation – Set defaults to 0 if NaN
if (isNaN(price)) price = 0;
if (isNaN(grossRent)) grossRent = 0;
if (isNaN(otherIncome)) otherIncome = 0;
if (isNaN(vacancyRate)) vacancyRate = 0;
if (isNaN(tax)) tax = 0;
if (isNaN(insurance)) insurance = 0;
if (isNaN(maintenance)) maintenance = 0;
if (isNaN(mgmtFeePercent)) mgmtFeePercent = 0;
if (isNaN(utilities)) utilities = 0;
// 1. Calculate Income
var grossPotentialIncome = grossRent + otherIncome;
var vacancyLoss = grossPotentialIncome * (vacancyRate / 100);
var effectiveGrossIncome = grossPotentialIncome – vacancyLoss;
// 2. Calculate Expenses
// Management fee is usually calculated on Collected (Effective) Income, not Gross Potential
var mgmtFeeAmount = effectiveGrossIncome * (mgmtFeePercent / 100);
var totalOperatingExpenses = tax + insurance + maintenance + mgmtFeeAmount + utilities;
// 3. Calculate NOI
var noi = effectiveGrossIncome – totalOperatingExpenses;
// 4. Calculate Cap Rate
var capRate = 0;
if (price > 0) {
capRate = (noi / price) * 100;
}
// 5. Display Results
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('resGrossIncome').innerText = formatter.format(grossPotentialIncome);
document.getElementById('resVacancy').innerText = "(" + formatter.format(vacancyLoss) + ")";
document.getElementById('resEffectiveIncome').innerText = formatter.format(effectiveGrossIncome);
document.getElementById('resExpenses').innerText = formatter.format(totalOperatingExpenses);
document.getElementById('resNOI').innerText = formatter.format(noi);
document.getElementById('resCapRate').innerText = capRate.toFixed(2) + "%";
// Show result div
document.getElementById('resultsArea').style.display = 'block';
}
Understanding Cap Rate in Real Estate Investing
The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics used in commercial and residential real estate investing. It acts as a thermometer for a property's potential profitability, allowing investors to compare the value of different properties regardless of how they are financed.
Formula: Cap Rate = (Net Operating Income / Property Asset Value) × 100
Why Use a Cap Rate Calculator?
Calculating the Cap Rate manually for multiple properties can be tedious and prone to error. This specific calculator allows you to factor in not just the rent and price, but the crucial nuances of vacancy rates, management fees (which significantly eat into profit), and maintenance costs. By isolating the Net Operating Income (NOI), you get a clear picture of the property's raw ability to generate cash flow.
Input Breakdown
Property Purchase Price: The current market value or the price you intend to pay for the asset.
Gross Rental Income: The total rent you expect to collect in a year if the property is 100% occupied.
Vacancy Rate: Realistically, no property is full 365 days a year. A standard safe estimate is 5-8% to account for turnover.
Operating Expenses: These are the costs required to run the property (Taxes, Insurance, Maintenance). Note: Mortgage payments are NOT included in Cap Rate calculations.
What is a "Good" Cap Rate?
There is no single number that defines a "good" Cap Rate, as it varies heavily by location and asset class. However, generally speaking:
4% – 5%: Common in high-demand, low-risk areas (like downtown NYC or San Francisco). While the return is lower, the asset appreciation potential is usually higher.
6% – 8%: Often considered a healthy balance between risk and return in suburban markets.
8% – 12%+: Common in older properties or riskier neighborhoods. While the cash flow looks high, these properties often require more maintenance or have unstable tenant bases.
Cap Rate vs. Cash-on-Cash Return
It is important to distinguish between Cap Rate and Cash-on-Cash Return. Cap Rate measures the return of the property as if you bought it with 100% cash (unleveraged). Cash-on-Cash Return measures the return on the actual cash you invested (down payment), factoring in your mortgage leverage. Use Cap Rate to compare the property; use Cash-on-Cash to compare your financing strategy.
Example Scenario
Imagine you are looking at a duplex listed for $500,000.
The property generates $60,000 in gross rent annually.
You estimate a 5% vacancy rate ($3,000 loss).
Your operating expenses (taxes, insurance, management) total $17,000.
Your Effective Gross Income is $57,000.
Your NOI is $57,000 – $17,000 = $40,000.
Using the formula: ($40,000 / $500,000) = 0.08 or 8%. This would be considered a strong investment in most markets.