Calculate the profitability and return potential of your real estate investment.
Investment Summary
Net Operating Income (NOI)$0
Capitalization Rate0%
Understanding Capitalization Rate
The Capitalization Rate, or Cap Rate, is the most popular metric used in commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property.
The Cap Rate Formula
Cap Rate = (Net Operating Income / Current Market Value) x 100
Key Definitions
Gross Annual Income: The total potential income generated by the property before any expenses are deducted.
Operating Expenses: Costs required to maintain and operate the property (taxes, insurance, maintenance, utilities). This does not include mortgage payments or capital expenditures.
Net Operating Income (NOI): The actual profit the property makes after all operating expenses are paid, but before taxes and interest.
Current Market Value: The present price a property would sell for on the open market.
Example Calculation
Suppose you are looking at a multi-family building with the following figures:
Gross Rental Income: $100,000
Annual Operating Expenses: $35,000
Market Value: $1,200,000
First, calculate the NOI: $100,000 – $35,000 = $65,000.
Next, divide NOI by Value: ($65,000 / $1,200,000) = 0.0541.
Multiply by 100 to get the percentage: 5.41% Cap Rate.
function calculateCapRate() {
var grossIncome = parseFloat(document.getElementById('grossIncome').value) || 0;
var otherIncome = parseFloat(document.getElementById('otherIncome').value) || 0;
var expenses = parseFloat(document.getElementById('operatingExpenses').value) || 0;
var propertyValue = parseFloat(document.getElementById('propertyValue').value) || 0;
if (propertyValue <= 0) {
alert("Please enter a valid property value greater than zero.");
return;
}
var totalIncome = grossIncome + otherIncome;
var noi = totalIncome – expenses;
var capRate = (noi / propertyValue) * 100;
// Format results
document.getElementById('noiResult').innerHTML = '$' + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('capRateResult').innerHTML = capRate.toFixed(2) + '%';
// Display result area
document.getElementById('resultArea').style.display = 'block';
}