Evaluate the profitability of your real estate investment by calculating the Capitalization Rate.
Investment Analysis Results
Annual Net Operating Income (NOI):$0.00
Capitalization Rate:0.00%
Understanding the Cap Rate Calculation
The Capitalization Rate (Cap Rate) is one of the most vital metrics for real estate investors. It helps determine the yield of an investment property over a one-year time horizon without considering financing (mortgage) costs.
The Cap Rate Formula
Cap Rate = (Annual Net Operating Income / Current Market Value) × 100
Key Components
Gross Income: The total revenue generated by the property, including rent, parking fees, or laundry facilities.
Operating Expenses: Costs required to keep the property running, such as property taxes, insurance, management fees, repairs, and utilities. Note: This does not include debt service (mortgage payments).
Net Operating Income (NOI): What is left over after all operating expenses are subtracted from gross income.
Real-World Example
Imagine you purchase a multi-family duplex for $600,000. Your total monthly rent collected is $4,500, and your monthly expenses (taxes, maintenance, insurance) average $1,200.
Annual Gross Income: $4,500 × 12 = $54,000
Annual Expenses: $1,200 × 12 = $14,400
Net Operating Income: $54,000 – $14,400 = $39,600
Cap Rate: ($39,600 / $600,000) = 0.066 or 6.6%
What is a "Good" Cap Rate?
A "good" cap rate varies by market and property type. Generally, a higher cap rate (8% to 12%) indicates higher potential return but often comes with higher risk or a location in a less desirable area. A lower cap rate (4% to 6%) usually indicates a lower-risk investment in a prime, high-demand location where property values are expected to appreciate significantly.
function calculateCapRate() {
var propertyValue = parseFloat(document.getElementById('propertyValue').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var otherIncome = parseFloat(document.getElementById('otherIncome').value) || 0;
var monthlyExpenses = parseFloat(document.getElementById('monthlyExpenses').value);
if (isNaN(propertyValue) || isNaN(monthlyRent) || isNaN(monthlyExpenses) || propertyValue <= 0) {
alert("Please enter valid numbers for Property Value, Rent, and Expenses.");
return;
}
// Calculations
var totalMonthlyIncome = monthlyRent + otherIncome;
var annualGrossIncome = totalMonthlyIncome * 12;
var annualExpenses = monthlyExpenses * 12;
var noi = annualGrossIncome – annualExpenses;
var capRate = (noi / propertyValue) * 100;
// Formatting results
document.getElementById('resNOI').innerText = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resCapRate').innerText = capRate.toFixed(2) + "%";
var summary = "";
if (capRate = 4 && capRate <= 8) {
summary = "This is a standard yield range for most residential investment properties in stable markets.";
} else {
summary = "This property shows a high yield. Ensure you have accounted for all maintenance and vacancy risks associated with higher-cap properties.";
}
document.getElementById('analysisSummary').innerText = summary;
document.getElementById('resultsArea').style.display = 'block';
// Scroll to result
document.getElementById('resultsArea').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}