Calculate the Capitalization Rate for your real estate investments.
Include taxes, insurance, HOA, maintenance, management fees. Exclude mortgage.
Please enter valid positive numbers for all fields.
Gross Annual Income:–
Vacancy Loss:–
Effective Gross Income:–
Total Annual Expenses:–
Net Operating Income (NOI):–
Cap Rate:–
Understanding the Cap Rate Calculator
The Capitalization Rate, or Cap Rate, is one of the most fundamental metrics in commercial and residential real estate investing. It helps investors evaluate the profitability and return potential of an investment property independent of its financing. Unlike the Cash-on-Cash return, Cap Rate focuses purely on the property's ability to generate revenue relative to its market value.
Using our specialized Cap Rate Calculator allows you to quickly assess whether a property meets your investment criteria before digging deeper into the financial details.
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively simple but requires accurate inputs to be meaningful. The core formula is:
Cap Rate = (Net Operating Income / Current Market Value) × 100
To use this formula, you must first determine the Net Operating Income (NOI). The steps are as follows:
Calculate Gross Annual Income: Multiply the monthly rent by 12.
Subtract Vacancy Losses: Deduct a percentage of income to account for periods when the property sits empty.
Subtract Operating Expenses: Deduct costs like property taxes, insurance, property management fees, repairs, and utilities. Note: Do not include mortgage payments (debt service) in this calculation.
Divide by Property Value: Take the resulting NOI and divide it by the purchase price or current market value.
What is a "Good" Cap Rate?
There is no single percentage that defines a "good" Cap Rate, as it varies significantly by location, property type, and the current economic environment. However, general guidelines include:
4% to 5%: Often found in high-demand, low-risk areas (like downtown NYC or San Francisco). These properties usually appreciate well but offer lower immediate cash flow.
6% to 8%: Considered a healthy balance for many residential investors in suburban markets.
8% to 12%: Common in rural areas or higher-risk neighborhoods. These properties offer high cash flow but may come with higher management headaches or lower appreciation potential.
Why Use a Cap Rate Calculator?
Investors use this metric to compare different properties on an apples-to-apples basis. Since Cap Rate excludes mortgage financing, it allows you to compare a property you buy with cash versus one you finance, or to compare two properties with different listing prices.
Factors That Influence Cap Rate
Several variables can affect the capitalization rate of a property:
Location: Prime locations have lower Cap Rates due to high demand and lower risk.
Asset Class: Commercial offices, multifamily apartments, and industrial warehouses all trade at different average Cap Rates.
Interest Rates: As borrowing costs rise, investors typically demand higher Cap Rates to justify the investment, which puts downward pressure on property prices.
Property Condition: Turn-key properties generally command lower Cap Rates than "fixer-uppers" because the risk is lower.
Difference Between Cap Rate and ROI
While Cap Rate measures the property's natural rate of return, ROI (Return on Investment) or Cash-on-Cash Return considers your financing. If you take out a mortgage, your ROI might be higher than the Cap Rate because you are using leverage. However, the Cap Rate remains the purest measure of the asset's performance itself.
function calculateCapRate() {
// Get input elements
var propValueInput = document.getElementById("propertyValue");
var monthlyRentInput = document.getElementById("monthlyRent");
var annualExpensesInput = document.getElementById("annualExpenses");
var vacancyRateInput = document.getElementById("vacancyRate");
// Get values
var propValue = parseFloat(propValueInput.value);
var monthlyRent = parseFloat(monthlyRentInput.value);
var annualExpenses = parseFloat(annualExpensesInput.value);
var vacancyRate = parseFloat(vacancyRateInput.value);
// Error handling elements
var errorMsg = document.getElementById("errorMessage");
var resultsDiv = document.getElementById("results");
// Validate inputs
if (isNaN(propValue) || isNaN(monthlyRent) || isNaN(annualExpenses) || isNaN(vacancyRate) || propValue <= 0) {
errorMsg.style.display = "block";
resultsDiv.style.display = "none";
return;
}
// Hide error if valid
errorMsg.style.display = "none";
// 1. Calculate Gross Annual Income
var grossAnnualIncome = monthlyRent * 12;
// 2. Calculate Vacancy Loss
var vacancyLoss = grossAnnualIncome * (vacancyRate / 100);
// 3. Calculate Effective Gross Income
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
// 4. Calculate Net Operating Income (NOI)
var noi = effectiveGrossIncome – annualExpenses;
// 5. Calculate Cap Rate
// Formula: (NOI / Property Value) * 100
var capRate = (noi / propValue) * 100;
// Formatting Helper Function
function formatCurrency(num) {
return '$' + num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
// Display Results
document.getElementById("resGrossIncome").innerText = formatCurrency(grossAnnualIncome);
document.getElementById("resVacancy").innerText = formatCurrency(vacancyLoss);
document.getElementById("resEffectiveIncome").innerText = formatCurrency(effectiveGrossIncome);
document.getElementById("resExpenses").innerText = formatCurrency(annualExpenses);
document.getElementById("resNOI").innerText = formatCurrency(noi);
// Color code the Cap Rate
var capRateSpan = document.getElementById("resCapRate");
capRateSpan.innerText = capRate.toFixed(2) + "%";
// Show results section
resultsDiv.style.display = "block";
}