How to Calculate Cap Rate Biggerpockets

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BiggerPockets Cap Rate Calculator

Include taxes, insurance, repairs, management. (Exclude Mortgage!)

Calculation Results

Annual Net Operating Income (NOI):

Cap Rate:

function calculateCapRate() { var purchasePrice = parseFloat(document.getElementById("purchasePrice").value); var grossMonthlyRent = parseFloat(document.getElementById("grossMonthlyRent").value); var monthlyExpenses = parseFloat(document.getElementById("monthlyExpenses").value); if (isNaN(purchasePrice) || isNaN(grossMonthlyRent) || isNaN(monthlyExpenses) || purchasePrice <= 0) { alert("Please enter valid positive numbers for all fields."); return; } var annualGrossIncome = grossMonthlyRent * 12; var annualExpenses = monthlyExpenses * 12; var noi = annualGrossIncome – annualExpenses; var capRate = (noi / purchasePrice) * 100; document.getElementById("noiDisplay").innerHTML = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById("capRateDisplay").innerHTML = capRate.toFixed(2) + "%"; document.getElementById("capRateResult").style.display = "block"; }

Understanding Cap Rate in Real Estate

The Capitalization Rate, or Cap Rate, is one of the most fundamental metrics used by real estate investors on platforms like BiggerPockets. It measures the potential rate of return on a real estate investment property based on the income that the property is expected to generate.

The Cap Rate Formula

The calculation for Cap Rate is straightforward but requires accurate data regarding the property's finances:

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

What is Net Operating Income (NOI)?

NOI is the total income generated by the property minus all operating expenses. It is crucial to remember that for Cap Rate calculations, operating expenses do NOT include mortgage payments (principal and interest) or capital expenditures. Operating expenses typically include:

  • Property Taxes
  • Property Insurance
  • Maintenance and Repairs
  • Property Management Fees
  • Utilities (if paid by the owner)
  • Landscaping and Snow Removal

A Realistic Example

Imagine you are looking at a duplex listed on the MLS for $300,000. Each unit rents for $1,500 per month, totaling $3,000 in monthly gross rent. After accounting for taxes, insurance, and maintenance, your monthly operating expenses average $1,200.

  1. Annual Gross Income: $3,000 x 12 = $36,000
  2. Annual Operating Expenses: $1,200 x 12 = $14,400
  3. Annual NOI: $36,000 – $14,400 = $21,600
  4. Cap Rate: ($21,600 / $300,000) x 100 = 7.2%

Why is Cap Rate Important for BiggerPockets Investors?

Cap Rate allows investors to compare different investment opportunities quickly. A property with a higher Cap Rate generally indicates higher risk but also higher potential returns. Conversely, a lower Cap Rate usually suggests a safer investment in a "Class A" neighborhood with higher demand.

However, Cap Rate should never be the only metric you use. It doesn't account for leverage (mortgage financing), tax implications, or future appreciation. Use this calculator as a first step in your due diligence process to see if a property meets your target return criteria.

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