Calculating Cap Rate Real Estate

Capitalization Rate (Cap Rate) Calculator

The capitalization rate (cap rate) is a key metric used in real estate to estimate the potential return on investment for an income-producing property. It's calculated by dividing the Net Operating Income (NOI) by the property's current market value or purchase price.

Understanding Cap Rate

The Net Operating Income (NOI) represents the annual income generated by a property after deducting all operating expenses, but before accounting for mortgage payments, depreciation, and income taxes. Common operating expenses include property taxes, insurance, property management fees, repairs, and maintenance.

The Property Value (or Purchase Price) is the current market value of the property or the price you paid for it. This serves as the basis for your investment.

The formula for Cap Rate is:

Cap Rate = (Net Operating Income / Property Value) * 100%

A higher cap rate generally indicates a potentially better return on investment, assuming similar risk levels. However, cap rates can vary significantly based on property type, location, market conditions, and the risk associated with the investment. It's essential to compare cap rates of similar properties in the same market to make informed investment decisions.

function calculateCapRate() { var noiInput = document.getElementById("netOperatingIncome"); var valueInput = document.getElementById("propertyValue"); var resultDisplay = document.getElementById("capRateResult"); var noi = parseFloat(noiInput.value); var propertyValue = parseFloat(valueInput.value); if (isNaN(noi) || isNaN(propertyValue)) { resultDisplay.textContent = "Please enter valid numbers for both fields."; return; } if (propertyValue === 0) { resultDisplay.textContent = "Property value cannot be zero."; return; } var capRate = (noi / propertyValue) * 100; resultDisplay.textContent = capRate.toFixed(2) + "%"; } #cap-rate-calculator { font-family: sans-serif; border: 1px solid #ccc; padding: 20px; border-radius: 8px; max-width: 600px; margin: 20px auto; background-color: #f9f9f9; } #cap-rate-calculator h2 { text-align: center; color: #333; } .form-group { margin-bottom: 15px; } .form-group label { display: block; margin-bottom: 5px; font-weight: bold; color: #555; } .form-group input[type="number"] { width: calc(100% – 22px); padding: 10px; border: 1px solid #ccc; border-radius: 4px; font-size: 1em; } #cap-rate-calculator button { display: block; width: 100%; padding: 10px; background-color: #007bff; color: white; border: none; border-radius: 4px; font-size: 1.1em; cursor: pointer; margin-top: 15px; margin-bottom: 20px; } #cap-rate-calculator button:hover { background-color: #0056b3; } #result { text-align: center; margin-top: 20px; padding: 15px; background-color: #e9ecef; border-radius: 4px; } #result h3 { margin-top: 0; color: #333; } #capRateResult { font-size: 1.5em; font-weight: bold; color: #28a745; } .explanation { margin-top: 30px; border-top: 1px solid #eee; padding-top: 20px; font-size: 0.95em; line-height: 1.6; color: #444; } .explanation h3 { color: #333; margin-bottom: 10px; }