Please enter valid positive numbers for Price and Rent.
Capitalization Rate (Cap Rate)0.00%
Gross Scheduled Income (Annual):$0.00
Effective Gross Income (Adjusted for Vacancy):$0.00
Total Annual Expenses:$0.00
Net Operating Income (NOI):$0.00
Total Investment Cost:$0.00
function calculateCapRate() {
var purchasePrice = parseFloat(document.getElementById('purchasePrice').value);
var closingCosts = parseFloat(document.getElementById('closingCosts').value) || 0;
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value) || 0;
var annualExpenses = parseFloat(document.getElementById('annualExpenses').value) || 0;
var errorMsg = document.getElementById('error-message');
var resultArea = document.getElementById('results-area');
// Basic Validation
if (isNaN(purchasePrice) || purchasePrice <= 0 || isNaN(monthlyRent) || monthlyRent 0) {
capRate = (netOperatingIncome / totalInvestment) * 100;
}
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
// Updating DOM
document.getElementById('displayGrossIncome').innerText = formatter.format(grossAnnualIncome);
document.getElementById('displayEffectiveIncome').innerText = formatter.format(effectiveGrossIncome);
document.getElementById('displayExpenses').innerText = formatter.format(annualExpenses);
document.getElementById('displayNOI').innerText = formatter.format(netOperatingIncome);
document.getElementById('displayTotalCost').innerText = formatter.format(totalInvestment);
document.getElementById('displayCapRate').innerText = capRate.toFixed(2) + "%";
// Show Results
resultArea.style.display = 'block';
}
Understanding Capitalization Rate (Cap Rate)
The Capitalization Rate, commonly referred to as "Cap Rate," is one of the most fundamental metrics used in commercial and residential real estate investing. It helps investors evaluate the profitability and return potential of an investment property independent of its financing.
How is Cap Rate Calculated?
The formula for calculating Cap Rate is relatively straightforward but requires accurate financial data regarding the property's operations:
Cap Rate = Net Operating Income (NOI) / Current Market Value (or Purchase Price)
Where Net Operating Income (NOI) is calculated by subtracting all operating expenses (property management, taxes, insurance, maintenance) from the property's effective gross income. Note that mortgage payments (debt service) are not included in the NOI calculation.
What is a "Good" Cap Rate?
There is no single number that defines a "good" cap rate, as it varies heavily based on location, property type, and the current economic environment. However, general guidelines suggest:
4% to 5%: Often associated with lower-risk, high-demand areas (Class A properties in major cities). These properties usually appreciate better over time but offer lower immediate cash flow.
6% to 8%: Considered a balanced range for many residential investors, offering a mix of reasonable risk and steady income.
8% to 12%+: Typically found in riskier markets or older properties (Class C) that may require more management or maintenance. While the return is higher, the risk of vacancy or repair costs is also elevated.
Why Use a Cap Rate Calculator?
This tool allows you to quickly compare different investment opportunities on an apples-to-apples basis. By inputting the purchase price, expected rent, and expenses, you can determine if a property meets your required rate of return before diving into deeper financial analysis. Remember, Cap Rate assumes you are buying the property in cash; to analyze leveraged returns (using a mortgage), you should also look at the "Cash on Cash Return" metric.