Real Estate Investment Cap Rate Calculation

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Cap Rate Calculator

Calculate the Capitalization Rate for Real Estate Investments

Calculation Summary

Net Operating Income (NOI) $0.00
Cap Rate 0.00%

Understanding the Real Estate Cap Rate

The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics used in commercial and residential real estate investment. It represents the yield of a property over a one-year time horizon assuming the property was purchased with cash and no debt was used.

The Cap Rate Formula

The formula used in this calculator is:

Cap Rate = (Net Operating Income / Current Market Value) × 100

Where Net Operating Income (NOI) is calculated as:
(Gross Rental Income + Other Income) – Operating Expenses.

What Expenses Should You Include?

When calculating the Cap Rate, it is vital to only include Operating Expenses. These include:

  • Property Taxes
  • Insurance Premiums
  • Maintenance and Repair costs
  • Property Management fees
  • Utilities paid by the landlord
  • Landscaping and Snow removal

Important: Do not include mortgage interest, principal payments, or depreciation. Cap rate is designed to measure the property's performance independent of the financing method.

Realistic Example

Imagine you are looking at a multi-family property priced at $850,000.
Annual Rents: $90,000
Other Income (Laundry): $2,000
Annual Expenses: $35,000

Step 1: Calculate NOI. ($90,000 + $2,000) – $35,000 = $57,000.
Step 2: Divide NOI by Price. $57,000 / $850,000 = 0.067.
Step 3: Convert to percentage. 0.067 * 100 = 6.7% Cap Rate.

function calculateCapRate() { // Get values from inputs var price = parseFloat(document.getElementById('propertyValue').value); var gross = parseFloat(document.getElementById('grossIncome').value) || 0; var other = parseFloat(document.getElementById('otherIncome').value) || 0; var expenses = parseFloat(document.getElementById('operatingExpenses').value) || 0; // Validation if (isNaN(price) || price <= 0) { alert('Please enter a valid property value greater than zero.'); return; } if (isNaN(gross) || gross < 0) { alert('Please enter a valid gross income.'); return; } // Logic for Net Operating Income var totalIncome = gross + other; var noi = totalIncome – expenses; // Logic for Cap Rate var capRate = (noi / price) * 100; // Formatting numbers for display var formattedNOI = noi.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); var formattedCapRate = capRate.toFixed(2); // Update the UI document.getElementById('resNOI').innerText = '$' + formattedNOI; document.getElementById('resCapRate').innerText = formattedCapRate + '%'; // Show the result container document.getElementById('resultDisplay').style.display = 'block'; // Scroll to results for mobile users document.getElementById('resultDisplay').scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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