Calculate the Capitalization Rate for your investment property.
Please enter valid positive numbers for all fields. Purchase price must be greater than zero.
Net Operating Income (NOI):–
Purchase Price:–
Capitalization Rate (Cap Rate):–
Understanding the Capitalization Rate (Cap Rate)
The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics used by real estate investors to evaluate the profitability and return potential of an income-generating property. Unlike a simple gross yield, the Cap Rate takes into account operating expenses, providing a clearer picture of the property's efficiency.
This calculator helps investors quickly determine the Cap Rate based on the property's current market value (or purchase price) and its Net Operating Income (NOI). It is an essential tool for comparing different investment opportunities regardless of how they are financed.
How is Cap Rate Calculated?
The formula for Capitalization Rate is relatively straightforward but requires accurate inputs regarding income and expenses. The formula is:
Cap Rate = (Net Operating Income / Current Market Value) × 100%
To use this formula, you must first calculate the Net Operating Income (NOI):
Gross Annual Income: Total income generated by the property, including rent, parking fees, and laundry services.
Operating Expenses: Costs required to run the property, such as property taxes, insurance, maintenance, property management fees, and utilities. Note: Mortgage payments (debt service) are NOT included in operating expenses for Cap Rate calculations.
What is a "Good" Cap Rate?
There is no single percentage that defines a "good" Cap Rate, as it varies significantly by location, property class, and the current economic environment. However, here are general guidelines:
4% – 5%: Often associated with low-risk, Class A properties in prime locations (e.g., downtown New York or San Francisco). While returns are lower, asset appreciation is usually higher.
6% – 8%: Typically seen as a healthy balance between risk and return. These might be Class B properties in stable suburban areas.
10%+: Usually indicates higher risk. These properties might be in declining neighborhoods, require significant renovation, or be located in rural areas with higher vacancy risks.
Why Use a Cap Rate Calculator?
Using a Cap Rate calculator allows you to strip away the effects of financing (mortgages) and evaluate the property's raw ability to generate cash flow. This makes it possible to compare a property you might buy with cash versus one you might finance, or to compare properties across different cities on an apples-to-apples basis.
Limitations of the Cap Rate
While useful, the Cap Rate should not be the only metric you use. It does not account for future potential growth in income, tax benefits, or the leverage gained through financing. For a complete analysis, investors should also calculate the Cash-on-Cash Return and Internal Rate of Return (IRR).
function calculateCapRate() {
// 1. Get input values
var priceInput = document.getElementById('propertyValue');
var incomeInput = document.getElementById('grossIncome');
var expensesInput = document.getElementById('operatingExpenses');
var errorMsg = document.getElementById('errorMsg');
var resultsArea = document.getElementById('results-area');
var price = parseFloat(priceInput.value);
var income = parseFloat(incomeInput.value);
var expenses = parseFloat(expensesInput.value);
// 2. Validate inputs
if (isNaN(price) || isNaN(income) || isNaN(expenses) || price <= 0 || income < 0 || expenses < 0) {
errorMsg.style.display = 'block';
resultsArea.style.display = 'none';
return;
}
// Hide error if valid
errorMsg.style.display = 'none';
// 3. Perform calculations
var noi = income – expenses;
var capRate = (noi / price) * 100;
// 4. Update UI
// Helper to format currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
document.getElementById('noiResult').innerHTML = formatter.format(noi);
document.getElementById('priceResult').innerHTML = formatter.format(price);
// Format Cap Rate with 2 decimal places
document.getElementById('capRateResult').innerHTML = capRate.toFixed(2) + '%';
// Show results
resultsArea.style.display = 'block';
}