Calculate the potential return on your real estate investment.
(Taxes, insurance, maintenance, management)
Gross Annual Income:–
Vacancy Loss:–
Effective Gross Income:–
Net Operating Income (NOI):–
Cap Rate:0.00%
What is Capitalization Rate (Cap Rate)?
The Capitalization Rate, or Cap Rate, is one of the most fundamental metrics in commercial and residential real estate investing. It measures the expected rate of return on an investment property based on the income the property is expected to generate. It is independent of financing methods, making it a pure measure of a property's yield.
Essentially, the Cap Rate answers the question: "If I paid all cash for this property today, what percentage of my investment would I get back in profit every year?"
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively straightforward but requires accurate inputs regarding the property's income and expenses:
Cap Rate = (Net Operating Income / Current Market Value) × 100
To use this formula efficiently, you must first determine the Net Operating Income (NOI):
Gross Annual Income: Total rent collected over 12 months.
Vacancy Loss: Estimated income lost due to empty units (typically 5-10%).
Operating Expenses: Costs required to run the property (taxes, insurance, repairs, property management fees). Note: Mortgage payments (debt service) are not included in NOI.
What is a "Good" Cap Rate?
There is no single percentage that defines a "good" Cap Rate, as it varies heavily by location, property class, and current interest rates. However, general guidelines include:
4% – 5%: Common in high-demand, low-risk areas (e.g., downtown New York or San Francisco). Lower risk often equals lower returns.
6% – 8%: Often considered a healthy balance for stable suburban markets.
8% – 12%+: Typical in older properties, riskier neighborhoods, or rural areas where the potential for appreciation is lower, so investors demand higher annual cash flow.
Why Use Our Cap Rate Calculator?
Using a manual calculation can lead to errors, particularly when factoring in vacancy rates and aggregating annual expenses. This tool allows investors to quickly stress-test different scenarios—such as raising rent or lowering maintenance costs—to see how these changes impact the property's valuation and yield.
function calculateCapRate() {
// Get inputs
var propValue = document.getElementById("propertyValue").value;
var monthlyRent = document.getElementById("monthlyRent").value;
var annualExpenses = document.getElementById("annualExpenses").value;
var vacancyRate = document.getElementById("vacancyRate").value;
// Validate inputs
if (propValue === "" || monthlyRent === "" || annualExpenses === "" || vacancyRate === "") {
alert("Please fill in all fields to calculate the Cap Rate.");
return;
}
var valueNum = parseFloat(propValue);
var rentNum = parseFloat(monthlyRent);
var expNum = parseFloat(annualExpenses);
var vacNum = parseFloat(vacancyRate);
if (isNaN(valueNum) || isNaN(rentNum) || isNaN(expNum) || isNaN(vacNum)) {
alert("Please enter valid numbers.");
return;
}
if (valueNum <= 0) {
alert("Property Value must be greater than zero.");
return;
}
// Calculations
var grossAnnualIncome = rentNum * 12;
var vacancyLoss = grossAnnualIncome * (vacNum / 100);
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
var netOperatingIncome = effectiveGrossIncome – expNum;
var capRate = (netOperatingIncome / valueNum) * 100;
// Update DOM with results
document.getElementById("resGrossIncome").innerText = "$" + grossAnnualIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resVacancyLoss").innerText = "-$" + vacancyLoss.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resEffectiveIncome").innerText = "$" + effectiveGrossIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resNOI").innerText = "$" + netOperatingIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Handle negative or standard cap rate
var capRateText = capRate.toFixed(2) + "%";
var capRateElement = document.getElementById("resCapRate");
capRateElement.innerText = capRateText;
if (capRate < 0) {
capRateElement.style.color = "#e74c3c"; // Red for negative return
} else {
capRateElement.style.color = "#27ae60"; // Green for positive
}
// Show results box
document.getElementById("resultsArea").style.display = "block";
}