function calculateCapRate() {
// 1. Get Input Values
var propValue = parseFloat(document.getElementById('propValue').value) || 0;
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value) || 0;
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value) || 0;
var tax = parseFloat(document.getElementById('tax').value) || 0;
var insurance = parseFloat(document.getElementById('insurance').value) || 0;
var maintenance = parseFloat(document.getElementById('maintenance').value) || 0;
var management = parseFloat(document.getElementById('management').value) || 0;
var otherExp = parseFloat(document.getElementById('otherExp').value) || 0;
// Validation to prevent division by zero or nonsense results
if (propValue <= 0) {
alert("Please enter a valid Purchase Price greater than zero.");
return;
}
// 2. Perform Calculations
// Income Logic
var annualGrossIncome = monthlyRent * 12;
var vacancyLoss = annualGrossIncome * (vacancyRate / 100);
var effectiveGrossIncome = annualGrossIncome – vacancyLoss;
// Expense Logic
var totalOperatingExpenses = tax + insurance + maintenance + management + otherExp;
// NOI Logic
var netOperatingIncome = effectiveGrossIncome – totalOperatingExpenses;
// Cap Rate Logic
var capRate = (netOperatingIncome / propValue) * 100;
// 3. Update DOM Elements
// Formatter for Currency
var currencyFormat = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('resGross').innerText = currencyFormat.format(annualGrossIncome);
document.getElementById('resVacancy').innerText = "-" + currencyFormat.format(vacancyLoss);
document.getElementById('resEffective').innerText = currencyFormat.format(effectiveGrossIncome);
document.getElementById('resExpenses').innerText = "-" + currencyFormat.format(totalOperatingExpenses);
document.getElementById('resNOI').innerText = currencyFormat.format(netOperatingIncome);
// Handle negative Cap Rate display
document.getElementById('resCapRate').innerText = capRate.toFixed(2) + "%";
if(capRate < 0) {
document.getElementById('resCapRate').style.color = "#e53e3e";
} else {
document.getElementById('resCapRate').style.color = "#2b6cb0";
}
// Show Results
document.getElementById('resultsArea').style.display = "block";
}
Understanding Capitalization Rate (Cap Rate) in Real Estate
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 investment property. Unlike a mortgage calculator which focuses on your monthly payments, the Cap Rate Calculator focuses strictly on the property's ability to generate natural income relative to its purchase price.
The Cap Rate Formula
The formula used in this calculator is industry-standard:
Cap Rate = (Net Operating Income / Property Asset Value) × 100
Where Net Operating Income (NOI) is your annual revenue minus all necessary operating expenses (excluding mortgage payments), and Property Asset Value is the current market value or purchase price of the property.
What is Net Operating Income (NOI)?
To get an accurate Cap Rate, you must calculate NOI correctly. This involves three steps:
Gross Income: The total rent you would collect if the property were 100% occupied for the entire year.
Effective Gross Income: Gross income minus a "Vacancy Factor." Even the best properties have turnover, so it is wise to subtract 5-10% for vacancy losses.
Operating Expenses: These are the costs to keep the property running, such as property taxes, insurance, maintenance, landscaping, and property management fees. Note: Mortgage principal and interest payments are NOT included in operating expenses for Cap Rate calculations.
What is a "Good" Cap Rate?
There is no single number that defines a "good" Cap Rate, as it varies heavily by location and asset class. However, general guidelines include:
4% – 5%: Common in high-demand, low-risk areas (like downtown NYC or San Francisco). While the return is lower, the asset is usually safer and appreciates more over time.
6% – 8%: Often considered a healthy balance between risk and return for residential rental properties in stable suburban markets.
8% – 12%+: Typical in riskier markets or older properties that require more maintenance. The higher return compensates the investor for the increased risk or management headache.
Why Use This Calculator?
This tool helps you strip away the emotion of buying a property and look at the raw numbers. By isolating the operating performance (NOI) from the financing method (Mortgage), you can compare two different properties apples-to-apples, regardless of how you plan to pay for them.