Determine the potential return on your real estate investment.
Please enter valid positive numbers for all fields.
Capitalization Rate (Cap Rate)
0.00%
Net Operating Income (NOI): $0 Total Annual Expenses: $0
function calculateCapRate() {
// Get input values
var price = parseFloat(document.getElementById('propertyPrice').value);
var grossIncome = parseFloat(document.getElementById('grossIncome').value);
var vacancy = parseFloat(document.getElementById('vacancyRate').value);
var mgmt = parseFloat(document.getElementById('mgmtFees').value);
var tax = parseFloat(document.getElementById('propTax').value);
var insurance = parseFloat(document.getElementById('insurance').value);
var errorDiv = document.getElementById('errorDisplay');
var resultDiv = document.getElementById('capResult');
// Reset displays
errorDiv.style.display = 'none';
resultDiv.style.display = 'none';
// Validation logic
if (isNaN(price) || isNaN(grossIncome) || isNaN(vacancy) || isNaN(mgmt) || isNaN(tax) || isNaN(insurance)) {
errorDiv.innerText = "Please fill in all fields with valid numbers.";
errorDiv.style.display = 'block';
return;
}
if (price <= 0) {
errorDiv.innerText = "Purchase Price must be greater than zero.";
errorDiv.style.display = 'block';
return;
}
// Calculations
// 1. Calculate Effective Gross Income (Gross – Vacancy Loss)
var vacancyLoss = grossIncome * (vacancy / 100);
var effectiveGrossIncome = grossIncome – vacancyLoss;
// 2. Calculate Total Operating Expenses
var totalExpenses = mgmt + tax + insurance;
// 3. Calculate Net Operating Income (NOI)
var noi = effectiveGrossIncome – totalExpenses;
// 4. Calculate Cap Rate
var capRate = (noi / price) * 100;
// Formatting Output
document.getElementById('finalCap').innerText = capRate.toFixed(2) + "%";
document.getElementById('noiDisplay').innerText = noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('expenseDisplay').innerText = totalExpenses.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Display Result
resultDiv.style.display = 'block';
}
Understanding the Capitalization Rate (Cap Rate)
In the world of real estate investing, the Capitalization Rate, commonly referred to as the "Cap Rate," is one of the most fundamental metrics used to evaluate the profitability and return potential of an investment property. Unlike a mortgage calculator that focuses on your monthly payments, a Cap Rate calculator focuses purely on the asset's performance independent of financing.
What is Cap Rate?
The Cap Rate is a percentage that indicates the annual rate of return expected to be generated on a real estate investment property. It is calculated by dividing the property's Net Operating Income (NOI) by its current market value or purchase price.
Formula: Cap Rate = (Net Operating Income / Property Value) × 100
How to Use This Calculator
Our tool helps you derive the true Cap Rate by accounting for operational realities often overlooked by beginners. Here is a breakdown of the inputs required:
Property Purchase Price: The total amount you are paying for the property.
Annual Gross Rental Income: The total rent collected if the property is 100% occupied for the entire year.
Estimated Vacancy Rate: No property is occupied 100% of the time. A standard vacancy rate to factor in is usually between 5% and 8%.
Operating Expenses: This includes property management fees, property taxes, insurance, repairs, and maintenance. Note: Mortgage payments (debt service) are not included in Cap Rate calculations.
What is a "Good" Cap Rate?
There is no single number that defines a "good" Cap Rate, as it varies significantly by location and asset class. However, generally speaking:
4% to 5%: Common in high-demand, low-risk areas (like downtown NYC or San Francisco). These properties usually appreciate in value over time but offer lower immediate cash flow.
6% to 8%: Often considered a healthy balance between risk and return for residential multifamily properties in stable suburban markets.
8% to 10%+: Typically found in higher-risk areas or older properties requiring more maintenance. While the return looks high, the risk of tenant turnover or major repairs is also higher.
Why NOI Matters
Net Operating Income (NOI) is the heartbeat of your calculation. It represents the actual cash the property generates after all operating bills are paid, but before you pay a mortgage or income taxes. By accurately estimating your expenses in the calculator above—specifically vacancy and maintenance—you prevent the common mistake of overestimating your potential profit.
Example Calculation
Imagine you buy a duplex for $200,000. It generates $24,000 in rent annually.
After paying $4,000 in taxes, $1,500 in insurance, and setting aside $2,500 for maintenance/vacancy, your Total Expenses are $8,000.
NOI: $24,000 – $8,000 = $16,000.
Cap Rate: ($16,000 / $200,000) = 0.08 or 8.0%.
This means if you bought the property with all cash, you would earn an 8% return on your money annually.