Please enter valid numeric values for price and income.
Gross Annual Income:
Effective Gross Income (adj. for vacancy):
Net Operating Income (NOI):
Capitalization Rate (Cap Rate):
function calculateCapRate() {
var price = parseFloat(document.getElementById('crPropertyPrice').value);
var monthlyIncome = parseFloat(document.getElementById('crMonthlyIncome').value);
var expenses = parseFloat(document.getElementById('crAnnualExpenses').value);
var vacancy = parseFloat(document.getElementById('crVacancyRate').value);
// Default expenses to 0 if empty
if (isNaN(expenses)) expenses = 0;
// Default vacancy to 0 if empty
if (isNaN(vacancy)) vacancy = 0;
var errorDiv = document.getElementById('cr-error');
var resultsDiv = document.getElementById('cr-results');
// Validation
if (isNaN(price) || isNaN(monthlyIncome) || price <= 0 || monthlyIncome < 0) {
errorDiv.style.display = 'block';
resultsDiv.style.display = 'none';
return;
}
errorDiv.style.display = 'none';
// Calculations
var grossAnnual = monthlyIncome * 12;
var vacancyLoss = grossAnnual * (vacancy / 100);
var effectiveGross = grossAnnual – vacancyLoss;
var noi = effectiveGross – expenses;
var capRate = (noi / price) * 100;
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
// Display Results
document.getElementById('cr-gross-annual').innerHTML = formatter.format(grossAnnual);
document.getElementById('cr-effective-gross').innerHTML = formatter.format(effectiveGross);
document.getElementById('cr-noi').innerHTML = formatter.format(noi);
document.getElementById('cr-final-rate').innerHTML = capRate.toFixed(2) + '%';
resultsDiv.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 commercial and residential real estate investing. It indicates the rate of return that represents the property's potential profitability based on its expected annual income.
Unlike other metrics like ROI (Return on Investment) or Cash-on-Cash Return, the Cap Rate calculates the intrinsic value of the property independent of the buyer's financing method. This makes it an excellent tool for comparing the relative value of different real estate opportunities.
How is Cap Rate Calculated?
The formula for calculating Cap Rate is relatively straightforward but requires accurate financial inputs:
Cap Rate = (Net Operating Income / Current Market Value) × 100
1. Net Operating Income (NOI)
NOI is the annual revenue generated by the property minus all necessary operating expenses.
Revenue includes rent, parking fees, and service charges.
Expenses include property taxes, insurance, management fees, maintenance, and utilities.
Note: NOI does not include mortgage payments (principal and interest) or capital expenditures.
2. Property Value
This is typically the current market value of the asset or the purchase price you are negotiating. As the price of a property goes up, the Cap Rate goes down (assuming income stays the same).
What is a "Good" Cap Rate?
There is no single percentage that defines a "good" Cap Rate, as it depends heavily on the risk associated with the property and the current market environment.
4% to 6%: Often seen in "safe" markets (e.g., Class A buildings in major cities like New York or San Francisco). Lower risk, but lower returns.
6% to 8%: A common target for many private investors looking for a balance of stability and cash flow.
8% to 12%+: Higher returns usually associated with higher risk, older properties, or rural markets.
Why Use Our Cap Rate Calculator?
Manually calculating Cap Rate can lead to errors, particularly when factoring in vacancy rates and annualized expenses. This tool helps you instantly visualize the relationship between purchase price, operating costs, and your potential return, allowing you to make data-driven investment decisions quickly.