Calculate Net Operating Income (NOI) and Capitalization Rate
Property Value & Income
Annual Operating Expenses
Please enter valid numeric values for Property Price and Gross Rent.
Gross Potential Income:$0.00
– Vacancy Loss:-$0.00
= Effective Gross Income:$0.00
– Total Operating Expenses:-$0.00
Net Operating Income (NOI):$0.00
Cap Rate:0.00%
function calculateCapRate() {
// Clear error
var errorDiv = document.getElementById('errorMsg');
var resultsDiv = document.getElementById('crcResults');
errorDiv.style.display = 'none';
// Get Input Values
var price = parseFloat(document.getElementById('propertyPrice').value);
var grossRent = parseFloat(document.getElementById('grossRent').value);
var otherIncome = parseFloat(document.getElementById('otherIncome').value) || 0;
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value) || 0;
// Expenses
var mgmtFees = parseFloat(document.getElementById('mgmtFees').value) || 0;
var propertyTax = parseFloat(document.getElementById('propertyTax').value) || 0;
var insurance = parseFloat(document.getElementById('insurance').value) || 0;
var maintenance = parseFloat(document.getElementById('maintenance').value) || 0;
var utilities = parseFloat(document.getElementById('utilities').value) || 0;
// Validation
if (isNaN(price) || isNaN(grossRent) || price <= 0) {
errorDiv.style.display = 'block';
resultsDiv.style.display = 'none';
return;
}
// Calculations
var grossPotentialIncome = grossRent + otherIncome;
var vacancyLoss = grossPotentialIncome * (vacancyRate / 100);
var effectiveGrossIncome = grossPotentialIncome – vacancyLoss;
var totalExpenses = mgmtFees + propertyTax + insurance + maintenance + utilities;
var noi = effectiveGrossIncome – totalExpenses;
var capRate = (noi / price) * 100;
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
// Update DOM
document.getElementById('resGrossIncome').innerText = formatter.format(grossPotentialIncome);
document.getElementById('resVacancy').innerText = "-" + formatter.format(vacancyLoss);
document.getElementById('resEffectiveIncome').innerText = formatter.format(effectiveGrossIncome);
document.getElementById('resExpenses').innerText = "-" + formatter.format(totalExpenses);
document.getElementById('resNOI').innerText = formatter.format(noi);
document.getElementById('resCapRate').innerText = capRate.toFixed(2) + "%";
resultsDiv.style.display = 'block';
}
What is Capitalization Rate (Cap Rate)?
The Capitalization Rate, often referred to as the "Cap Rate," is one of the most popular metrics used in commercial real estate to evaluate the potential return on an investment property. It represents the rate of return on a real estate investment property based on the income that the property is expected to generate.
Essentially, the Cap Rate tells you the annual percentage yield you can expect on your investment if you were to pay cash for the property. It helps investors compare different properties regardless of their price or size.
How to Calculate Cap Rate
The formula for calculating the Cap Rate is relatively simple, but it requires accurate data regarding the property's income and expenses. The formula is:
Cap Rate = Net Operating Income (NOI) / Current Market Value
Step-by-Step Calculation:
Calculate Gross Income: Sum up all rental income and other income sources (laundry, parking, etc.).
Subtract Vacancy: Deduct expected losses due to vacancies or credit loss.
Calculate Operating Expenses: Sum all expenses required to run the property (taxes, insurance, management, maintenance). Note: Mortgage payments (debt service) are NOT included in NOI.
Determine NOI: Subtract Operating Expenses from the Effective Gross Income.
Divide by Price: Divide the NOI by the property's purchase price or current market value to get the percentage.
What is a Good Cap Rate?
There is no single "good" Cap Rate, as it depends heavily on the market, the property type, and the risk level. However, here are some general guidelines:
4% – 5%: Typical for high-demand, low-risk areas (e.g., Class A buildings in major cities). These properties appreciate well but offer lower immediate cash flow.
6% – 8%: Often considered a balanced range for residential rentals and commercial properties in stable suburban markets.
8% – 10%+: Common in higher-risk or rural areas. These properties offer higher cash flow to compensate for potential instability or lower appreciation.
Why is Net Operating Income (NOI) Important?
Net Operating Income is the heartbeat of real estate valuation. It measures the property's ability to generate profit from operations, ignoring financing structures and tax strategies. A higher NOI not only increases your cash flow but directly increases the value of the property. For example, if market Cap Rates are 6%, every $1,000 increase in annual NOI adds roughly $16,666 to the property's value.