.calculator-content-wrapper {
font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
max-width: 800px;
margin: 0 auto;
color: #333;
line-height: 1.6;
}
.cap-rate-calc-container {
background-color: #f9f9f9;
border: 1px solid #e0e0e0;
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;
}
.calc-header h3 {
margin: 0;
color: #2c3e50;
font-size: 24px;
}
.input-group {
margin-bottom: 20px;
}
.input-group label {
display: block;
margin-bottom: 8px;
font-weight: 600;
font-size: 15px;
}
.input-group input {
width: 100%;
padding: 12px;
border: 1px solid #ccc;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
}
.input-group .helper-text {
font-size: 12px;
color: #666;
margin-top: 5px;
}
.calc-btn {
display: block;
width: 100%;
background-color: #27ae60;
color: white;
padding: 15px;
border: none;
border-radius: 4px;
font-size: 18px;
font-weight: bold;
cursor: pointer;
transition: background-color 0.3s;
}
.calc-btn:hover {
background-color: #219150;
}
.results-section {
margin-top: 30px;
padding-top: 20px;
border-top: 2px dashed #ddd;
display: none;
}
.result-row {
display: flex;
justify-content: space-between;
align-items: center;
margin-bottom: 15px;
font-size: 16px;
}
.result-row.main-result {
background-color: #e8f5e9;
padding: 15px;
border-radius: 4px;
color: #27ae60;
font-weight: bold;
font-size: 22px;
}
.article-section h2 {
color: #2c3e50;
margin-top: 30px;
border-bottom: 2px solid #27ae60;
padding-bottom: 10px;
display: inline-block;
}
.article-section h3 {
color: #2c3e50;
margin-top: 20px;
}
.article-section p {
margin-bottom: 15px;
}
.article-section ul {
margin-bottom: 20px;
padding-left: 20px;
}
.article-section li {
margin-bottom: 8px;
}
.example-box {
background-color: #eef2f5;
padding: 20px;
border-left: 4px solid #3498db;
margin: 20px 0;
}
function calculateCapRate() {
// Get input values
var price = parseFloat(document.getElementById('cr_propertyPrice').value);
var monthlyRent = parseFloat(document.getElementById('cr_monthlyRent').value);
var vacancyRate = parseFloat(document.getElementById('cr_vacancyRate').value);
var annualExpenses = parseFloat(document.getElementById('cr_annualExpenses').value);
// Validation
if (isNaN(price) || isNaN(monthlyRent) || isNaN(vacancyRate) || isNaN(annualExpenses)) {
alert("Please enter valid numbers in all fields.");
return;
}
if (price <= 0) {
alert("Property Price must be greater than zero.");
return;
}
// Calculations
var grossAnnualIncome = monthlyRent * 12;
var vacancyLoss = grossAnnualIncome * (vacancyRate / 100);
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
var noi = effectiveGrossIncome – annualExpenses;
var capRate = (noi / price) * 100;
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
// Display Results
document.getElementById('display_grossIncome').innerHTML = formatter.format(grossAnnualIncome);
document.getElementById('display_vacancyLoss').innerHTML = "-" + formatter.format(vacancyLoss);
document.getElementById('display_noi').innerHTML = formatter.format(noi);
document.getElementById('display_capRate').innerHTML = capRate.toFixed(2) + "%";
// Show results section
document.getElementById('cr_results').style.display = "block";
}
What is Cap Rate in Real Estate?
The Capitalization Rate, or Cap Rate, is one of the most fundamental metrics used in commercial and residential real estate investing. It measures the rate of return on a real estate investment property based on the income the property is expected to generate.
Essentially, the Cap Rate helps investors compare the profitability of different properties regardless of how they were purchased (cash vs. loan). It represents the yield of a property over a one-year time horizon, assuming the property is purchased for cash.
How to Calculate Cap Rate
The formula for calculating Cap Rate is relatively simple, but requires accurate data regarding the property's income and expenses:
Cap Rate Formula:
Cap Rate = (Net Operating Income / Current Market Value) × 100
To use this formula, you must first determine the Net Operating Income (NOI). The NOI is calculated by taking the Gross Annual Income and subtracting all operating expenses (taxes, insurance, maintenance, property management, vacancy costs) but excluding mortgage payments and capital expenditures.
Real World Example
Let's say you are looking to purchase a duplex for $500,000. Here is the financial breakdown:
- Gross Rental Income: $4,500/month × 12 = $54,000/year
- Vacancy Loss (5%): $2,700
- Operating Expenses: $15,000 (Taxes, Insurance, Repairs)
First, calculate the NOI:
$54,000 (Income) – $2,700 (Vacancy) – $15,000 (Expenses) = $36,300 (NOI)
Next, divide the NOI by the purchase price:
$36,300 / $500,000 = 0.0726
Multiply by 100 to get the percentage: 7.26% Cap Rate.
What is a "Good" Cap Rate?
There is no single answer to what constitutes a "good" cap rate, as it varies heavily by location, property type, and the current economic environment. However, general guidelines include:
- 4% – 5%: Common in high-demand "Class A" areas (e.g., downtown New York or San Francisco). Lower risk, lower return.
- 6% – 8%: Often considered a healthy balance of risk and return for many residential investors in suburban markets.
- 8% – 12%+: Higher returns usually associated with higher risk, older properties, or less desirable neighborhoods.
Why Cap Rate Matters
The Cap Rate allows you to evaluate a property's intrinsic profitability. Since it ignores debt service (mortgage), it helps you compare a $200,000 property directly against a $2,000,000 property to see which one is actually operating more efficiently.
Frequently Asked Questions (FAQ)
Does Cap Rate include mortgage payments?
No. Cap Rate is a measure of unleveraged return. To calculate returns including your mortgage debt, you should use the Cash on Cash Return metric.
Should I always buy the property with the highest Cap Rate?
Not necessarily. A very high Cap Rate often indicates high risk, such as a property in a declining neighborhood or one requiring significant repairs. Always balance the Cap Rate with other factors like location appreciation and tenant quality.
How does vacancy affect Cap Rate?
Vacancy directly reduces your Gross Income. As shown in our calculator, even a 5% or 10% vacancy rate can significantly lower your Net Operating Income, thereby reducing your Cap Rate.