Please enter valid positive numbers for all fields.
Capitalization Rate0.00%
Net Operating Income (NOI):$0.00
Effective Gross Income:$0.00
Total Expenses:$0.00
function calculateCapRate() {
// Get input values
var price = parseFloat(document.getElementById('cr_property_price').value);
var grossIncome = parseFloat(document.getElementById('cr_gross_income').value);
var expenses = parseFloat(document.getElementById('cr_operating_expenses').value);
var vacancy = parseFloat(document.getElementById('cr_vacancy_rate').value);
var errorBox = document.getElementById('cr_error');
var resultBox = document.getElementById('cr_result_box');
// Validation
if (isNaN(price) || isNaN(grossIncome) || isNaN(expenses) || isNaN(vacancy) || price <= 0) {
errorBox.style.display = 'block';
resultBox.style.display = 'none';
return;
} else {
errorBox.style.display = 'none';
}
// Calculations
// 1. Calculate Effective Gross Income (Gross – Vacancy Loss)
var vacancyLoss = grossIncome * (vacancy / 100);
var effectiveGrossIncome = grossIncome – vacancyLoss;
// 2. Calculate Net Operating Income (NOI)
var noi = effectiveGrossIncome – expenses;
// 3. Calculate Cap Rate (NOI / Current Market Value)
var capRate = (noi / price) * 100;
// Formatting functions
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
// Display Results
document.getElementById('cr_final_rate').innerHTML = capRate.toFixed(2) + "%";
document.getElementById('cr_noi').innerHTML = formatter.format(noi);
document.getElementById('cr_effective_income').innerHTML = formatter.format(effectiveGrossIncome);
document.getElementById('cr_total_expenses').innerHTML = formatter.format(expenses);
// Color code the cap rate (Visual indicator)
var rateElement = document.getElementById('cr_final_rate');
if (capRate = 4 && capRate < 8) {
rateElement.style.color = '#fab005'; // Yellow/Orange for medium
} else {
rateElement.style.color = '#40c057'; // Green for high/good
}
resultBox.style.display = 'block';
}
Understanding the Capitalization Rate (Cap Rate)
The Capitalization Rate, commonly referred to as the Cap Rate, is one of the most fundamental metrics in real estate investing. It measures the natural rate of return on an investment property for a single year, assuming the purchase was made entirely in cash (without financing). It allows investors to compare the profitability of different properties regardless of how they are financed.
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively straightforward but requires accurate financial data regarding the property's operations. The formula is:
Cap Rate = Net Operating Income (NOI) / Property Asset Value
To use our calculator effectively, you need to understand the three main components:
Property Price: The current market value or the purchase price of the property.
Gross Rental Income: The total income the property produces if 100% occupied.
Operating Expenses: Costs required to run the property, including taxes, insurance, maintenance, and management fees. (Note: Mortgage payments are not included in operating expenses for Cap Rate calculations).
Vacancy Rate: An estimate of the percentage of time the property will sit empty without generating rent.
What is a "Good" Cap Rate?
There is no single answer to what constitutes a "good" cap rate, as it varies significantly by location, property type, and the current economic environment. However, general guidelines suggest:
4% to 5%: Considered "Safe" or "Low Risk". These are typically Class A properties in prime locations (e.g., downtown NYC or San Francisco). While the return is lower, the asset is likely to appreciate and carries less risk.
6% to 8%: The "Sweet Spot" for many investors. This range often balances risk and return effectively, commonly found in suburban areas or developing neighborhoods.
10%+: Considered "High Yield" but "High Risk". These properties might be in declining neighborhoods or require significant renovation (fixer-uppers).
Why Net Operating Income (NOI) Matters
The Net Operating Income is the actual cash flow the property generates after all necessary expenses are paid, but before debt service (mortgage) and income taxes. This calculator derives your NOI by subtracting your operating expenses and estimated vacancy losses from your gross rental income. A higher NOI directly increases your Cap Rate and the value of your property.
Limitations of Cap Rate
While useful, the Cap Rate should not be the only metric you use. It does not account for:
Financing/Leverage: It assumes an all-cash purchase. If you have a mortgage, your "Cash on Cash Return" will differ from the Cap Rate.
Future Value: It is a snapshot of the present. It does not account for property appreciation or future rent increases.
Tax Implications: It does not calculate the impact of depreciation or income tax benefits.
Use this calculator as a preliminary screening tool to decide if a property warrants a deeper financial analysis.