Include taxes, insurance, maintenance, and management fees.
Investment Summary
Net Operating Income (NOI):
$0.00
Calculated Cap Rate:
0.00%
function toggleInputs() {
var mode = document.getElementById("calcMode").value;
var propField = document.getElementById("propValueField");
var capField = document.getElementById("capRateField");
if (mode === "capRate") {
propField.style.display = "block";
capField.style.display = "none";
} else {
propField.style.display = "none";
capField.style.display = "block";
}
}
function calculateCapRate() {
var mode = document.getElementById("calcMode").value;
var gross = parseFloat(document.getElementById("grossIncome").value) || 0;
var expenses = parseFloat(document.getElementById("operatingExpenses").value) || 0;
var noi = gross – expenses;
var resDisplay = document.getElementById("calcResults");
var resNOI = document.getElementById("resNOI");
var resMain = document.getElementById("resMain");
var labelResult = document.getElementById("labelResult");
if (noi <= 0) {
alert("Expenses cannot exceed gross income for a valid cap rate calculation.");
return;
}
resNOI.innerHTML = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
if (mode === "capRate") {
var value = parseFloat(document.getElementById("currentValue").value) || 0;
if (value <= 0) {
alert("Please enter a valid property value.");
return;
}
var capRate = (noi / value) * 100;
labelResult.innerHTML = "Calculated Cap Rate:";
resMain.innerHTML = capRate.toFixed(2) + "%";
} else {
var targetRate = parseFloat(document.getElementById("targetCapRate").value) || 0;
if (targetRate <= 0) {
alert("Please enter a valid target cap rate.");
return;
}
var estimatedValue = noi / (targetRate / 100);
labelResult.innerHTML = "Estimated Property Value:";
resMain.innerHTML = "$" + estimatedValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
resDisplay.style.display = "block";
}
Understanding the Property Cap Rate
The Capitalization Rate (or Cap Rate) is a fundamental metric used in real estate investment to evaluate the profitability and return potential of an income-producing property. It represents the yield of a property over a one-year time horizon assuming the property is purchased with cash.
The Cap Rate Formula
The calculation is straightforward but relies on accurate financial data:
Cap Rate = (Net Operating Income / Current Market Value) × 100
Alternatively, to find the Market Value based on a target return:
Market Value = Net Operating Income / (Cap Rate / 100)
What is Net Operating Income (NOI)?
NOI is the "clean" income of a property. To calculate it, you subtract all necessary operating expenses from the total gross income. Crucially, NOI does not include mortgage payments (debt service), depreciation, or income taxes.
Operating Expenses: Property taxes, insurance, repairs, utilities paid by the landlord, and property management fees.
Realistic Example
Imagine you are looking at an apartment complex priced at $1,200,000. It generates $100,000 in annual rent. Your annual expenses (taxes, insurance, and maintenance) total $30,000.
Calculate NOI: $100,000 – $30,000 = $70,000.
Calculate Cap Rate: ($70,000 / $1,200,000) × 100 = 5.83%.
If the average cap rate in that specific neighborhood is 7%, this property might be overpriced. If the average is 5%, you might be looking at a great deal.
Why the Cap Rate Matters
Investors use the cap rate to compare different real estate opportunities quickly. A higher cap rate generally indicates higher risk but higher potential return, whereas a lower cap rate usually indicates a safer investment in a high-demand area (like NYC or London).
By using this calculator, you can toggle between calculating the rate itself or determining what you should pay for a property to reach your desired return goals.