*Calculation excludes mortgage/financing costs as per Cap Rate definition.
function calculateCapRate() {
// Get input values
var propValue = parseFloat(document.getElementById('propertyValue').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value);
var annualExpenses = parseFloat(document.getElementById('annualExpenses').value);
// Validation
if (isNaN(propValue) || propValue <= 0) {
alert("Please enter a valid Property Purchase Price.");
return;
}
if (isNaN(monthlyRent) || monthlyRent < 0) {
alert("Please enter valid Monthly Rental Income.");
return;
}
if (isNaN(vacancyRate) || vacancyRate 100) {
alert("Please enter a valid Vacancy Rate (0-100).");
return;
}
if (isNaN(annualExpenses) || annualExpenses < 0) {
alert("Please enter valid Annual Operating Expenses.");
return;
}
// Calculations
var grossPotentialIncome = monthlyRent * 12;
var vacancyLoss = grossPotentialIncome * (vacancyRate / 100);
var effectiveGrossIncome = grossPotentialIncome – vacancyLoss;
var netOperatingIncome = effectiveGrossIncome – annualExpenses;
var capRate = (netOperatingIncome / propValue) * 100;
// Display Results
document.getElementById('displayCapRate').innerHTML = capRate.toFixed(2) + "%";
// Formatting currency
var currencyFormatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
maximumFractionDigits: 0
});
document.getElementById('displayNOI').innerHTML = currencyFormatter.format(netOperatingIncome);
document.getElementById('displayGross').innerHTML = currencyFormatter.format(effectiveGrossIncome);
// Show result container
document.getElementById('resultContainer').style.display = "block";
}
What is Cap Rate in Real Estate?
The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics used in real estate investing to evaluate the profitability and return potential of an investment property. Unlike a mortgage calculator that focuses on monthly payments, the Cap Rate formula focuses purely on the property's ability to generate income relative to its market value, assuming the property was bought with cash.
The Formula:
Cap Rate = (Net Operating Income / Current Market Value) × 100
How to Calculate Net Operating Income (NOI)
The most critical component of the cap rate calculation is the Net Operating Income (NOI). It represents the annual profit a property generates before factoring in financing costs or taxes.
Gross Potential Income: Total annual rent if the property is 100% occupied.
Vacancy Loss: Income lost due to empty units or unpaid rent (typically 5-10%).
Operating Expenses: Costs required to run the property, including:
Property Taxes
Insurance
Property Management Fees
Maintenance and Repairs
Utilities (paid by owner)
HOA Fees
Note: Mortgage principal and interest payments are not included in operating expenses for Cap Rate calculations.
What is a Good Cap Rate?
There is no single "good" cap rate, as it varies significantly by location, property type, and economic conditions.
High Demand Areas (e.g., NYC, SF): Cap rates are typically lower (3% – 5%) because asset value appreciation is the primary goal and risk is perceived as low.
Secondary Markets: Cap rates are often higher (6% – 10%), offering better immediate cash flow but potentially higher risk or lower appreciation.
Risk Assessment: Generally, a higher cap rate implies higher risk (older building, worse location), while a lower cap rate implies a safer investment (Class A building, prime location).
Cap Rate vs. Cash-on-Cash Return
It is important not to confuse Cap Rate with Cash-on-Cash Return. Cap Rate measures the property's un-leveraged yield (buying in cash). Cash-on-Cash Return measures the return on the actual cash invested, taking into account debt service (mortgage payments). If you are financing a property, you should calculate both metrics to get a full picture of your investment.
Why Use This Calculator?
This tool helps investors quickly compare different properties on an apples-to-apples basis. By stripping away financing structures (which vary per investor), the Cap Rate reveals the intrinsic profitability of the asset itself. Use it to filter potential deals before diving into deeper financial analysis.