REIT Cap Rate Calculator
.reit-calculator-container {
max-width: 800px;
margin: 0 auto;
padding: 20px;
font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
background: #f9f9f9;
border: 1px solid #e0e0e0;
border-radius: 8px;
}
.reit-calc-header {
text-align: center;
margin-bottom: 30px;
}
.reit-calc-header h2 {
margin: 0;
color: #2c3e50;
}
.reit-form-grid {
display: grid;
grid-template-columns: 1fr 1fr;
gap: 20px;
}
@media (max-width: 600px) {
.reit-form-grid {
grid-template-columns: 1fr;
}
}
.reit-input-group {
margin-bottom: 15px;
}
.reit-input-group label {
display: block;
margin-bottom: 5px;
font-weight: 600;
color: #555;
font-size: 0.9em;
}
.reit-input-group input {
width: 100%;
padding: 10px;
border: 1px solid #ddd;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
}
.reit-input-group input:focus {
border-color: #3498db;
outline: none;
}
.reit-help-text {
font-size: 0.8em;
color: #7f8c8d;
margin-top: 4px;
}
.reit-calc-btn {
grid-column: 1 / -1;
background-color: #2c3e50;
color: white;
border: none;
padding: 15px;
border-radius: 4px;
font-size: 16px;
font-weight: bold;
cursor: pointer;
margin-top: 10px;
transition: background-color 0.2s;
}
.reit-calc-btn:hover {
background-color: #34495e;
}
.reit-results-area {
margin-top: 30px;
background: white;
padding: 25px;
border-radius: 6px;
border-left: 5px solid #27ae60;
box-shadow: 0 2px 5px rgba(0,0,0,0.05);
display: none;
}
.reit-result-row {
display: flex;
justify-content: space-between;
align-items: center;
padding: 10px 0;
border-bottom: 1px solid #eee;
}
.reit-result-row:last-child {
border-bottom: none;
}
.reit-result-label {
color: #555;
font-weight: 500;
}
.reit-result-value {
font-weight: 700;
color: #2c3e50;
font-size: 1.1em;
}
.reit-final-result {
font-size: 1.5em;
color: #27ae60;
}
.reit-content-section {
max-width: 800px;
margin: 40px auto;
line-height: 1.6;
color: #333;
}
.reit-content-section h2, .reit-content-section h3 {
color: #2c3e50;
}
.reit-content-section ul {
margin-bottom: 20px;
}
.reit-content-section li {
margin-bottom: 8px;
}
Gross Potential Income
Less: Vacancy/Loss
Effective Gross Income
Less: Operating Expenses
Net Operating Income (NOI)
Valuation Basis
Capitalization Rate
function calculateReitMetrics() {
// 1. Get input values
var grossIncomeInput = document.getElementById("grossIncome").value;
var vacancyRateInput = document.getElementById("vacancyRate").value;
var expensesInput = document.getElementById("operatingExpenses").value;
var marketValueInput = document.getElementById("marketValue").value;
// 2. Validate and Parse
var grossIncome = parseFloat(grossIncomeInput);
var vacancyRate = parseFloat(vacancyRateInput);
var expenses = parseFloat(expensesInput);
var marketValue = parseFloat(marketValueInput);
// Basic validation to prevent NaN errors
if (isNaN(grossIncome)) grossIncome = 0;
if (isNaN(vacancyRate)) vacancyRate = 0;
if (isNaN(expenses)) expenses = 0;
if (isNaN(marketValue)) marketValue = 0;
// 3. Perform Calculations
// Calculate Vacancy Loss Amount
var vacancyLoss = grossIncome * (vacancyRate / 100);
// Calculate Effective Gross Income
var effectiveIncome = grossIncome – vacancyLoss;
// Calculate Net Operating Income (NOI)
var noi = effectiveIncome – expenses;
// Calculate Cap Rate
// Formula: (NOI / Market Value) * 100
var capRate = 0;
if (marketValue > 0) {
capRate = (noi / marketValue) * 100;
}
// 4. Format Output functions
function formatMoney(amount) {
return "$" + amount.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
function formatPercent(amount) {
return amount.toFixed(2) + "%";
}
// 5. Update DOM
document.getElementById("displayGross").innerText = formatMoney(grossIncome);
document.getElementById("displayVacancy").innerText = "-" + formatMoney(vacancyLoss);
document.getElementById("displayEffective").innerText = formatMoney(effectiveIncome);
document.getElementById("displayExpenses").innerText = "-" + formatMoney(expenses);
document.getElementById("displayNOI").innerText = formatMoney(noi);
document.getElementById("displayValue").innerText = formatMoney(marketValue);
document.getElementById("displayCapRate").innerText = formatPercent(capRate);
// Show results
document.getElementById("reitResults").style.display = "block";
}
Understanding REIT Capitalization Rates
The Capitalization Rate (Cap Rate) is a fundamental metric used in commercial real estate and by Real Estate Investment Trusts (REITs) to estimate the potential return on an investment property. Unlike residential mortgage calculations, the Cap Rate ignores financing costs (like loan interest) to focus purely on the property's ability to generate revenue relative to its market value.
How to Calculate REIT Cap Rate
The calculation relies on two primary figures: Net Operating Income (NOI) and the Current Market Value (or Asset Cost). The formula is:
Cap Rate = (Net Operating Income / Current Market Value) × 100
Step-by-Step Breakdown:
- Gross Potential Income: The total income a property would produce if it were 100% leased at market rates.
- Effective Gross Income: Gross income minus an allowance for vacancy and credit losses (tenants who fail to pay).
- Net Operating Income (NOI): Effective Gross Income minus all operating expenses. Operating expenses include property management fees, taxes, insurance, utilities, and maintenance, but exclude debt service (mortgage payments) and capital expenditures.
Interpreting the Results
Cap rates and property values generally have an inverse relationship. A lower cap rate implies a higher property value relative to its income stream, often associated with lower risk assets (e.g., Class A office buildings in major cities). A higher cap rate implies a lower price relative to income, often associated with higher risk or properties requiring more management (e.g., older Class B/C buildings or secondary markets).
- 4% – 5%: Often seen in high-demand, low-risk metropolitan areas (Core REIT assets).
- 6% – 8%: Moderate risk, balanced growth and income properties.
- 8% – 10%+: Higher risk, potentially higher return, often found in value-add projects or distressed assets.
Why REIT Investors Use This
For REIT investors, analyzing the weighted average cap rate of a trust's portfolio helps determine if the REIT is acquiring properties at a favorable yield. If a REIT's cost of capital (the interest rate it pays to borrow money) is higher than the cap rate of the properties it buys, the spread is negative, which is generally unsustainable. Conversely, a positive spread between the Cap Rate and the cost of debt drives shareholder dividends.