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;
background-color: #f9f9f9;
}
.calculator-container {
background: #ffffff;
padding: 30px;
border-radius: 8px;
box-shadow: 0 4px 6px rgba(0,0,0,0.1);
margin-bottom: 40px;
border: 1px solid #e1e1e1;
}
.calc-header {
text-align: center;
margin-bottom: 25px;
color: #2c3e50;
}
.form-group {
margin-bottom: 20px;
}
.form-group label {
display: block;
margin-bottom: 8px;
font-weight: 600;
color: #444;
}
.input-wrapper {
position: relative;
}
.input-wrapper span {
position: absolute;
left: 10px;
top: 50%;
transform: translateY(-50%);
color: #777;
}
.input-wrapper input {
width: 100%;
padding: 12px 12px 12px 30px;
border: 1px solid #ddd;
border-radius: 4px;
font-size: 16px;
box-sizing: border-box;
}
.input-wrapper input:focus {
border-color: #3498db;
outline: none;
box-shadow: 0 0 5px rgba(52,152,219,0.2);
}
.suffix-wrapper input {
padding-right: 30px;
padding-left: 12px;
}
.suffix-wrapper span {
left: auto;
right: 10px;
}
button.calc-btn {
width: 100%;
padding: 15px;
background-color: #27ae60;
color: white;
border: none;
border-radius: 4px;
font-size: 18px;
font-weight: bold;
cursor: pointer;
transition: background-color 0.3s;
}
button.calc-btn:hover {
background-color: #219150;
}
#results-area {
margin-top: 30px;
padding: 20px;
background-color: #f0f8ff;
border-radius: 6px;
border-left: 5px solid #3498db;
display: none;
}
.result-row {
display: flex;
justify-content: space-between;
margin-bottom: 10px;
font-size: 16px;
}
.result-row.final {
margin-top: 15px;
padding-top: 15px;
border-top: 1px solid #dcdcdc;
font-weight: bold;
font-size: 20px;
color: #2c3e50;
}
.article-content {
background: #fff;
padding: 30px;
border-radius: 8px;
box-shadow: 0 2px 4px rgba(0,0,0,0.05);
}
.article-content h2 {
color: #2c3e50;
margin-top: 30px;
}
.article-content p {
margin-bottom: 15px;
}
.article-content ul {
margin-bottom: 20px;
padding-left: 20px;
}
.article-content li {
margin-bottom: 8px;
}
.highlight-box {
background-color: #fff3cd;
border: 1px solid #ffeeba;
padding: 15px;
border-radius: 4px;
margin: 20px 0;
}
Understanding Capitalization Rate in Real Estate Investing
Whether you are a seasoned commercial real estate investor or purchasing your first rental property, the Capitalization Rate (Cap Rate) is one of the most fundamental metrics for evaluating the profitability of an investment. This Cap Rate Calculator helps you quickly determine the potential return on a property based on its income generation relative to its price.
What is Cap Rate?
The Capitalization Rate, or "Cap Rate," is a calculation used to estimate the profitability and return potential of a real estate investment. It represents the ratio of a property's Net Operating Income (NOI) to its current market value or purchase price.
The Formula:
Cap Rate = (Net Operating Income / Property Value) × 100%
Because the Cap Rate calculation excludes mortgage financing costs, it allows investors to compare properties on an "apples-to-apples" basis, focusing purely on the property's ability to generate revenue relative to its cost.
How to Calculate Cap Rate (Step-by-Step)
Our calculator automates the process, but understanding the math is crucial for due diligence. Here is the breakdown:
- Calculate Gross Annual Income: Multiply monthly rent by 12 and add any other income sources (parking, laundry, etc.).
- Subtract Vacancy Losses: No property is occupied 100% of the time. Deduct a percentage (typically 5-10%) to account for turnover. This gives you the Effective Gross Income.
- Subtract Operating Expenses: Deduct costs required to run the property, such as property taxes, insurance, property management fees, repairs, and landscaping. Note: Do not include mortgage payments (principal and interest) or capital expenditures (major renovations) in this step. This result is your Net Operating Income (NOI).
- Divide by Property Value: Take the NOI and divide it by the purchase price.
What is a "Good" Cap Rate?
There is no single answer to what constitutes a "good" cap rate, as it varies significantly by location, property class, and the current economic environment. However, general guidelines include:
- 4% – 5%: Common in high-demand, low-risk areas (e.g., downtown New York or San Francisco). These properties often appreciate in value but offer lower immediate cash flow.
- 6% – 8%: Often considered a healthy balance between risk and return in stabilized suburban markets.
- 8% – 12%+: Typical in riskier markets or properties requiring significant work. While the return is higher, the risk of vacancy or major repairs is also elevated.
Why Net Operating Income (NOI) Matters
The core of the Cap Rate is the Net Operating Income (NOI). NOI is the cash flow a property produces before debt service and taxes. By focusing on NOI, our calculator ensures you are evaluating the operational efficiency of the asset itself, separate from your financing structure. A higher NOI relative to price always results in a higher Cap Rate.
Example Calculation
Imagine you are looking at a duplex listed for $400,000.
- Gross Income: $40,000 per year.
- Vacancy (5%): $2,000.
- Operating Expenses: $12,000 (Taxes, Ins, Maint).
Step 1: Effective Income = $40,000 – $2,000 = $38,000.
Step 2: NOI = $38,000 – $12,000 = $26,000.
Step 3: Cap Rate = ($26,000 / $400,000) = 6.5%.
Use the tool above to run your own scenarios and make data-driven investment decisions.
function calculateCapRate() {
// 1. Get Input Values
var propValueInput = document.getElementById('propertyValue').value;
var monthlyRentInput = document.getElementById('monthlyRent').value;
var vacancyRateInput = document.getElementById('vacancyRate').value;
var expensesInput = document.getElementById('annualExpenses').value;
// 2. Parse values (Validation handling)
var propValue = parseFloat(propValueInput);
var monthlyRent = parseFloat(monthlyRentInput);
var vacancyRate = parseFloat(vacancyRateInput);
var expenses = parseFloat(expensesInput);
// Check for valid numbers
if (isNaN(propValue) || propValue <= 0) {
alert("Please enter a valid Property Value greater than 0.");
return;
}
if (isNaN(monthlyRent) || monthlyRent < 0) {
alert("Please enter a valid Monthly Rent.");
return;
}
if (isNaN(expenses) || expenses < 0) {
alert("Please enter valid Operating Expenses.");
return;
}
// Default vacancy to 0 if empty
if (isNaN(vacancyRate)) {
vacancyRate = 0;
}
// 3. Perform Calculations
// Gross Annual Income
var grossAnnualIncome = monthlyRent * 12;
// Vacancy Loss
var vacancyLoss = grossAnnualIncome * (vacancyRate / 100);
// Effective Gross Income
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
// Net Operating Income (NOI)
var noi = effectiveGrossIncome – expenses;
// Cap Rate
var capRate = (noi / propValue) * 100;
// 4. Update the UI
document.getElementById('displayGrossIncome').innerText = formatCurrency(grossAnnualIncome);
document.getElementById('displayVacancyLoss').innerText = "-" + formatCurrency(vacancyLoss);
document.getElementById('displayEffectiveIncome').innerText = formatCurrency(effectiveGrossIncome);
document.getElementById('displayExpenses').innerText = "-" + formatCurrency(expenses);
document.getElementById('displayNOI').innerText = formatCurrency(noi);
// Handle negative NOI or weird edge cases in display
document.getElementById('displayCapRate').innerText = capRate.toFixed(2) + "%";
// Show results area
document.getElementById('results-area').style.display = 'block';
}
function formatCurrency(num) {
return "$" + num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}