Calculate the Capitalization Rate for your real estate investments instantly.
$
$
$
%
Gross Scheduled Income (Annual):$0.00
Vacancy Loss:-$0.00
Effective Gross Income:$0.00
Operating Expenses:-$0.00
Net Operating Income (NOI):$0.00
Capitalization Rate0.00%
function calculateCapRate() {
// 1. Get input values
var price = parseFloat(document.getElementById('cr_property_price').value);
var monthlyRent = parseFloat(document.getElementById('cr_monthly_rent').value);
var annualExpenses = parseFloat(document.getElementById('cr_annual_expenses').value);
var vacancyRate = parseFloat(document.getElementById('cr_vacancy_rate').value);
// 2. Validation
if (isNaN(price) || price <= 0) {
alert("Please enter a valid Property Price.");
return;
}
if (isNaN(monthlyRent) || monthlyRent < 0) {
alert("Please enter a valid Monthly Rent.");
return;
}
// Default values for optional fields if left empty
if (isNaN(annualExpenses)) annualExpenses = 0;
if (isNaN(vacancyRate)) vacancyRate = 0;
// 3. Calculation Logic
var grossAnnualIncome = monthlyRent * 12;
var vacancyLoss = grossAnnualIncome * (vacancyRate / 100);
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
var noi = effectiveGrossIncome – annualExpenses;
// Cap Rate Formula: (NOI / Property Price) * 100
var capRate = (noi / price) * 100;
// 4. Update UI
document.getElementById('cr_gross_income').innerText = '$' + grossAnnualIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cr_vacancy_loss').innerText = '-$' + vacancyLoss.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cr_effective_income').innerText = '$' + effectiveGrossIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cr_total_expenses').innerText = '-$' + annualExpenses.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cr_noi').innerText = '$' + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cr_final_cap_rate').innerText = capRate.toFixed(2) + '%';
// Show result area
document.getElementById('cr_results_area').style.display = 'block';
}
What is Cap Rate in Real Estate?
The Capitalization Rate (often just called "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. It represents the rate of return on a real estate investment property based on the income that the property is expected to generate.
Unlike other metrics like Cash-on-Cash return, Cap Rate measures the property's natural ability to generate a return independent of how the purchase was financed. This makes it an excellent tool for comparing different properties directly against one another, regardless of whether you are paying cash or taking out a mortgage.
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively straightforward, but it requires accurate data regarding the property's income and expenses. The core formula is:
Cap Rate = (Net Operating Income / Property Asset Value) × 100
To use this formula, you must first determine the Net Operating Income (NOI). Here is the breakdown:
Gross Income: The total rental income the property generates in a year.
Vacancy Loss: Income lost due to units sitting empty (usually estimated at 5-10%).
Operating Expenses: Costs required to run the property, such as property taxes, insurance, management fees, repairs, and utilities. Note: Mortgage payments (principal and interest) are NOT included in operating expenses for Cap Rate calculations.
Real-World Example
Scenario: You are looking at a duplex listed for $300,000.
Rental Income: The two units rent for $1,500 each, totaling $3,000/month or $36,000/year.
There is no single answer to what constitutes a "good" cap rate, as it depends heavily on the risk level and location of the property.
4% – 5%: Common in high-demand, low-risk areas (like downtown NYC or San Francisco). Appreciation is usually the goal here rather than immediate cash flow.
6% – 8%: Often considered a healthy balance for residential rental properties in stable suburban markets.
8% – 12%+: Typically found in higher-risk neighborhoods or rural areas. While the return is higher, the risk of vacancy or non-payment of rent is often higher as well.
When Should You Use This Calculator?
Use our Cap Rate Calculator whenever you are screening potential investment properties. It allows you to quickly filter out properties that are overpriced relative to the income they generate. However, remember that Cap Rate does not account for leverage (loans); for that, you should look at Cash-on-Cash return.