Cap Rate Calculation

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Capitalization Rate (Cap Rate) Calculator

The Capitalization Rate, commonly known as the Cap Rate, is a key metric used in commercial real estate investing to estimate the potential return on a property. It is calculated by dividing the Net Operating Income (NOI) of a property by its current market value or purchase price.

The Cap Rate provides investors with a quick way to compare the profitability of different investment properties, assuming they are all-cash purchases. A higher Cap Rate generally indicates a potentially higher return, while a lower Cap Rate suggests a lower return but potentially less risk.

Formula:

Cap Rate = Net Operating Income (NOI) / Property Value

Net Operating Income (NOI): This is the annual income a property generates after deducting all operating expenses, but before accounting for debt service (mortgage payments) and income taxes. Common operating expenses include property taxes, insurance, utilities, property management fees, and repairs and maintenance.

Property Value: This is typically the purchase price of the property or its current market value.

It's important to note that the Cap Rate is a snapshot metric and doesn't account for factors like potential future appreciation, depreciation, or the cost of capital if financing is used.

Result

function calculateCapRate() { var noiInput = document.getElementById("netOperatingIncome"); var valueInput = document.getElementById("propertyValue"); var resultDisplay = document.getElementById("capRateResult"); var noi = parseFloat(noiInput.value); var value = parseFloat(valueInput.value); if (isNaN(noi) || isNaN(value) || value <= 0) { resultDisplay.textContent = "Please enter valid numbers for NOI and Property Value. Property Value must be greater than 0."; return; } var capRate = (noi / value) * 100; resultDisplay.textContent = "The Capitalization Rate is: " + capRate.toFixed(2) + "%"; }

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