function calculateGoingInCapRate() {
// Get input elements by exact ID
var priceInput = document.getElementById('purchasePrice');
var incomeInput = document.getElementById('grossIncome');
var expensesInput = document.getElementById('operatingExpenses');
var errorDiv = document.getElementById('errorMessage');
var resultDiv = document.getElementById('result');
var noiDisplay = document.getElementById('noiResult');
var capRateDisplay = document.getElementById('capRateResult');
var gimDisplay = document.getElementById('gimResult');
// Parse values
var price = parseFloat(priceInput.value);
var income = parseFloat(incomeInput.value);
var expenses = parseFloat(expensesInput.value);
// Clear previous error
errorDiv.style.display = 'none';
resultDiv.style.display = 'none';
// Validation logic
if (isNaN(price) || price <= 0) {
errorDiv.innerText = "Please enter a valid Purchase Price greater than zero.";
errorDiv.style.display = 'block';
return;
}
if (isNaN(income) || income < 0) {
errorDiv.innerText = "Please enter a valid Annual Gross Income.";
errorDiv.style.display = 'block';
return;
}
if (isNaN(expenses) || expenses 0) {
gim = price / income;
}
// Formatting currency helper
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
// Update DOM
noiDisplay.innerText = formatter.format(noi);
capRateDisplay.innerText = capRate.toFixed(2) + "%";
gimDisplay.innerText = gim.toFixed(2) + "x";
resultDiv.style.display = 'block';
}
What is the Going In Cap Rate?
The Going In Cap Rate (Capitalization Rate) is a fundamental metric in commercial real estate used to estimate the initial yield on an investment property. It represents the relationship between the property's Net Operating Income (NOI) and its current purchase price.
Unlike the "Exit Cap Rate" (which estimates the value upon sale) or the "Market Cap Rate" (the average for the area), the Going In Cap Rate is specifically focused on the entry point of the deal. It tells an investor what percentage of the purchase price they can expect to receive as net income in the first year of ownership, assuming an all-cash purchase.
Going In Cap Rate = (Net Operating Income / Purchase Price) × 100
How to Calculate Going In Cap Rate
To use the calculator above effectively, you need three key pieces of data:
Purchase Price: The amount you are paying to acquire the asset. Do not include closing costs or renovation budgets in the denominator for the standard formula, though some investors calculate a "Cost Basis Cap Rate" by including renovations.
Annual Gross Income: The total revenue the property generates. This includes rental income, parking fees, laundry income, and any other revenue streams.
Operating Expenses: All costs associated with running the property. This typically includes property taxes, insurance, management fees, maintenance, utilities, and landscaping. Note: Do not include mortgage payments (debt service) or capital expenditures (CapEx) in this calculation.
Once you subtract Operating Expenses from Gross Income, you get the Net Operating Income (NOI). Dividing the NOI by the Purchase Price gives you the cap rate.
Why is the Going In Cap Rate Important?
The Going In Cap Rate serves several vital functions for investors:
Benchmarking: It allows for the quick comparison of different investment opportunities regardless of their price point.
Risk Assessment: Generally, a higher cap rate implies higher risk (and potentially higher return), while a lower cap rate implies a safer, more stable asset (often in prime locations).
Trend Analysis: Comparing the Going In Cap Rate to the Market Cap Rate helps determine if a property is underpriced or overpriced.
Example Calculation
Imagine you are looking at a small apartment complex listed for $2,000,000.
The total annual rent collected is $240,000.
The annual operating expenses (taxes, repairs, insurance) total $90,000.
While the Going In Cap Rate measures your yield at the time of purchase, the Going Out Cap Rate (or Terminal Cap Rate) is a projection used to estimate the resale value of the property at the end of the holding period. Financial models often assume the Going Out Cap Rate will be slightly higher than the Going In Cap Rate to account for the aging of the building and future market uncertainty.
What is a "Good" Cap Rate?
There is no single number that defines a "good" cap rate, as it depends heavily on the asset class and location. However, general guidelines include:
Class A Properties (New, Prime Location): Typically 3% – 5% (Lower risk, lower yield).
Class B Properties (Older, Good Location): Typically 5% – 7%.
Class C Properties (Needs Work, Less Desirable Area): Typically 7% – 10%+ (Higher risk, higher yield).
Always compare the calculated Going In Cap Rate against current interest rates. Ideally, the cap rate should be higher than the interest rate on your debt to ensure positive leverage.