body {
font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
line-height: 1.6;
color: #333;
max-width: 800px;
margin: 0 auto;
padding: 20px;
}
.calculator-container {
background-color: #f8f9fa;
border: 1px solid #e9ecef;
border-radius: 8px;
padding: 30px;
margin-bottom: 40px;
box-shadow: 0 4px 6px rgba(0,0,0,0.05);
}
.calc-header {
text-align: center;
margin-bottom: 25px;
color: #2c3e50;
}
.input-group {
margin-bottom: 20px;
}
.input-group label {
display: block;
margin-bottom: 8px;
font-weight: 600;
color: #495057;
}
.input-group input {
width: 100%;
padding: 12px;
border: 1px solid #ced4da;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
}
.input-group input:focus {
border-color: #4dabf7;
outline: none;
box-shadow: 0 0 0 3px rgba(77, 171, 247, 0.2);
}
.calculate-btn {
display: block;
width: 100%;
background-color: #228be6;
color: white;
border: none;
padding: 15px;
font-size: 18px;
font-weight: bold;
border-radius: 4px;
cursor: pointer;
transition: background-color 0.2s;
}
.calculate-btn:hover {
background-color: #1c7ed6;
}
.result-box {
margin-top: 25px;
background-color: #fff;
border: 1px solid #dee2e6;
border-radius: 4px;
padding: 20px;
display: none;
}
.result-row {
display: flex;
justify-content: space-between;
align-items: center;
padding: 10px 0;
border-bottom: 1px solid #f1f3f5;
}
.result-row:last-child {
border-bottom: none;
}
.result-label {
font-weight: 500;
color: #868e96;
}
.result-value {
font-weight: 700;
font-size: 1.2em;
color: #212529;
}
.highlight-result {
color: #228be6;
font-size: 1.5em;
}
.article-content h2 {
color: #2c3e50;
margin-top: 30px;
border-bottom: 2px solid #e9ecef;
padding-bottom: 10px;
}
.article-content p {
margin-bottom: 15px;
}
.formula-box {
background-color: #e7f5ff;
padding: 15px;
border-left: 4px solid #228be6;
margin: 20px 0;
font-family: "Courier New", monospace;
font-weight: bold;
}
.example-list li {
margin-bottom: 10px;
}
function calculateCapRate() {
// Get input values using var
var propValue = document.getElementById('propertyValue').value;
var grossInc = document.getElementById('grossIncome').value;
var opExp = document.getElementById('operatingExpenses').value;
// Validate inputs
if (propValue === "" || grossInc === "" || opExp === "") {
alert("Please fill in all fields to calculate the Cap Rate.");
return;
}
var valueNum = parseFloat(propValue);
var incomeNum = parseFloat(grossInc);
var expensesNum = parseFloat(opExp);
// Error handling for non-numeric or negative inputs
if (isNaN(valueNum) || isNaN(incomeNum) || isNaN(expensesNum)) {
alert("Please enter valid numbers.");
return;
}
if (valueNum <= 0) {
alert("Property Value must be greater than 0.");
return;
}
// Logic: Calculate Net Operating Income (NOI)
var noi = incomeNum – expensesNum;
// Logic: Calculate Cap Rate = (NOI / Property Value) * 100
var capRate = (noi / valueNum) * 100;
// Display Results
document.getElementById('resultDisplay').style.display = "block";
// Format Currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
document.getElementById('noiResult').innerHTML = formatter.format(noi);
document.getElementById('capRateResult').innerHTML = capRate.toFixed(2) + "%";
document.getElementById('roiText').innerHTML = capRate.toFixed(2) + "%";
}
How Is Cap Rate Calculated in Real Estate?
The Capitalization Rate, or "Cap Rate," is one of the most fundamental metrics in real estate investing. It allows investors to compare the profitability of different properties regardless of how they were purchased (cash vs. loan). It essentially measures the rate of return you would expect to generate on a real estate investment property if you bought it entirely with cash.
The Cap Rate Formula
To calculate the cap rate, you need two primary figures: the Net Operating Income (NOI) and the Current Market Value (or purchase price) of the property. The formula is straightforward:
Cap Rate = (Net Operating Income / Current Market Value) x 100
Step-by-Step Calculation
1. Calculate Gross Income
Start by determining the total annual income the property generates. This includes rental income plus any ancillary income (like parking fees, laundry machines, or storage fees). If the property is not fully occupied, you should account for vacancy losses.
2. Determine Operating Expenses
Subtract the operating expenses from the Gross Income. Operating expenses are the costs required to run and maintain the property. Critical Note: Do not include mortgage payments (principal and interest) in this calculation. Cap Rate is a measure of the property's performance, not your financing structure.
- Property Taxes
- Property Insurance
- Maintenance and Repairs
- Property Management Fees
- Utilities (paid by owner)
- Landscaping
3. Find Net Operating Income (NOI)
The result of taking your Gross Income and subtracting Operating Expenses is your Net Operating Income (NOI). This is the pure cash flow of the asset before debt service.
4. Divide by Property Value
Finally, divide the annual NOI by the current market value or the asking price of the property to get a decimal. Multiply by 100 to get the percentage.
Real-World Example
Let's look at a practical example to clarify the math:
- Purchase Price: $500,000
- Annual Rent: $60,000
- Annual Expenses: $20,000 (Taxes, Insurance, Repairs)
First, calculate the NOI:
$60,000 (Income) – $20,000 (Expenses) = $40,000 (NOI)
Next, apply the Cap Rate formula:
($40,000 / $500,000) = 0.08
Result: The Cap Rate is 8%.
What is a "Good" Cap Rate?
There is no universal "good" cap rate, as it depends heavily on the location and risk profile of the asset. Generally, a higher cap rate implies a higher return but often comes with higher risk (e.g., a property in a declining neighborhood). Conversely, a lower cap rate (3% – 5%) is often found in stable, high-demand areas where appreciation is expected to be the primary driver of value rather than immediate cash flow.
Investors often use the tool above to quickly screen properties. If a seller is asking for a price that results in a 2% Cap Rate, but the market average for that area is 6%, the property is likely overpriced, or the expenses are too high.