Pro Forma Cap Rate Calculator

Pro Forma Cap Rate Calculator

Analyze projected investment property performance

Projected Cap Rate 0.00%

Gross Annual Income: $0.00

Effective Gross Income (adj. for vacancy): $0.00

Net Operating Income (NOI): $0.00

Understanding the Pro Forma Cap Rate

A Pro Forma Cap Rate is a financial metric used by real estate investors to estimate the potential return on a property based on future projections rather than current historical data. While the "Actual Cap Rate" reflects the property's performance today, the "Pro Forma" version reflects its performance after stabilization, renovations, or rent increases.

The Formula

Cap Rate = (Net Operating Income / Property Value) × 100

Key Components

• Gross Annual Income: Total projected rent collected over 12 months.
• Vacancy Rate: A percentage of income lost due to unoccupied units or non-payment.
• Operating Expenses: Includes property taxes, insurance, repairs, property management, and utilities (excludes mortgage payments).
• Net Operating Income (NOI): The total income remaining after all operating expenses and vacancy losses are deducted.

Example Calculation

If you buy a multi-family property for $1,000,000 and project it can generate $8,000/month in rent with a 5% vacancy rate and $30,000 in annual operating expenses:

1. Gross Annual Income: $8,000 × 12 = $96,000
2. Effective Gross Income: $96,000 – 5% = $91,200
3. Net Operating Income: $91,200 – $30,000 = $61,200
4. Pro Forma Cap Rate: ($61,200 / $1,000,000) × 100 = 6.12%

function calculateProForma() { var price = parseFloat(document.getElementById('purchasePrice').value); var monthlyRent = parseFloat(document.getElementById('monthlyRent').value); var vacancyRate = parseFloat(document.getElementById('vacancyRate').value); var expenses = parseFloat(document.getElementById('operatingExpenses').value); if (isNaN(price) || isNaN(monthlyRent) || isNaN(vacancyRate) || isNaN(expenses) || price <= 0) { alert("Please enter valid positive numbers for all fields."); return; } // Calculation Logic var grossAnnualIncome = monthlyRent * 12; var vacancyLoss = grossAnnualIncome * (vacancyRate / 100); var effectiveGrossIncome = grossAnnualIncome – vacancyLoss; var netOperatingIncome = effectiveGrossIncome – expenses; var capRate = (netOperatingIncome / price) * 100; // UI Display Logic document.getElementById('resultsArea').style.display = 'block'; document.getElementById('finalCapRate').innerHTML = capRate.toFixed(2) + "%"; document.getElementById('grossIncomeDisplay').innerHTML = "$" + grossAnnualIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('effectiveIncomeDisplay').innerHTML = "$" + effectiveGrossIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('noiDisplay').innerHTML = "$" + netOperatingIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); // Smooth scroll to results document.getElementById('resultsArea').scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }