function calculateCapRate() {
// 1. Get input values
var priceStr = document.getElementById("propertyPrice").value;
var rentStr = document.getElementById("monthlyRent").value;
var vacancyStr = document.getElementById("vacancyRate").value;
var expensesStr = document.getElementById("annualExpenses").value;
// 2. Parse values to floats
var price = parseFloat(priceStr);
var monthlyRent = parseFloat(rentStr);
var vacancyRate = parseFloat(vacancyStr);
var expenses = parseFloat(expensesStr);
// 3. Validation
if (isNaN(price) || price <= 0) {
alert("Please enter a valid Property Purchase Price.");
return;
}
if (isNaN(monthlyRent) || monthlyRent < 0) {
alert("Please enter valid Monthly Rental Income.");
return;
}
if (isNaN(vacancyRate) || vacancyRate 100) {
alert("Please enter a valid Vacancy Rate (0-100).");
return;
}
if (isNaN(expenses) || expenses < 0) {
alert("Please enter valid Annual Operating Expenses.");
return;
}
// 4. Calculations
// Gross Annual Income = Monthly Rent * 12
var grossAnnualIncome = monthlyRent * 12;
// Vacancy Loss = Gross Income * (Vacancy Rate / 100)
var vacancyLoss = grossAnnualIncome * (vacancyRate / 100);
// Effective Gross Income = Gross Income – Vacancy Loss
var effectiveGrossIncome = grossAnnualIncome – vacancyLoss;
// Net Operating Income (NOI) = Effective Gross Income – Annual Expenses
var noi = effectiveGrossIncome – expenses;
// Cap Rate = (NOI / Price) * 100
var capRate = (noi / price) * 100;
// 5. Display Results
var resultBox = document.getElementById("resultBox");
resultBox.style.display = "block";
// Helper for currency formatting
var currencyFormatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
document.getElementById("resGrossIncome").innerHTML = currencyFormatter.format(grossAnnualIncome);
document.getElementById("resEffectiveIncome").innerHTML = currencyFormatter.format(effectiveGrossIncome);
document.getElementById("resNOI").innerHTML = currencyFormatter.format(noi);
// Color code the Cap Rate
var capRateEl = document.getElementById("resCapRate");
capRateEl.innerHTML = capRate.toFixed(2) + "%";
if (capRate = 4 && capRate < 8) {
capRateEl.style.color = "#fcc419"; // Yellow/Orange for mid
} else {
capRateEl.style.color = "#2f9e44"; // Green for high
}
}
Understanding the Capitalization Rate (Cap Rate) in Real Estate
The Capitalization Rate, commonly referred to as the "Cap Rate," is one of the most fundamental metrics used by real estate investors to evaluate the profitability and return potential of an investment property. Unlike a mortgage calculator that focuses on monthly payments, the Cap Rate calculator helps you understand the unleveraged yield of a property based on its income-generating potential.
Key Definition: Cap Rate measures a property's natural rate of return for a single year without taking into account mortgage financing. It is calculated by dividing the Net Operating Income (NOI) by the current market value or purchase price of the property.
How to Calculate Cap Rate
While our calculator above does the heavy lifting for you, it is crucial to understand the formula to interpret the results correctly:
Cap Rate = (Net Operating Income / Property Value) × 100%
To derive the Net Operating Income (NOI), you must:
Calculate Gross Income: Multiply monthly rent by 12.
Subtract Vacancy: Account for the time the property sits empty (usually 5-10%).
Subtract Operating Expenses: Deduct costs such as property taxes, insurance, management fees, maintenance, and utilities. Note: Do not deduct mortgage payments (debt service) when calculating NOI for Cap Rate.
What is a "Good" Cap Rate?
There is no single "good" Cap Rate that applies to every investment; it depends heavily on the risk level of the asset and the location. However, general market guidelines suggest:
4% – 5%: Often found in high-demand, low-risk areas (Class A properties in major cities). These properties usually appreciate well but offer lower immediate cash flow.
6% – 8%: A balanced range often sought by investors looking for a mix of stability and cash flow.
8% – 12%+: Higher risk properties or those in rural/declining areas. While the return looks high, the risk of vacancy or major repairs is often greater.
Cap Rate vs. Cash-on-Cash Return
It is important to distinguish Cap Rate from Cash-on-Cash Return. Cap Rate assumes you bought the property entirely with cash (no loan). Cash-on-Cash Return calculates your return based on the actual cash you invested (down payment), factoring in the mortgage debt service. Use Cap Rate to compare properties against each other, regardless of how they are financed.
Factors That Influence Cap Rates
Location: Prime locations command lower Cap Rates due to higher demand and lower risk.
Asset Class: Multifamily, commercial retail, and industrial properties all have different average Cap Rates.
Interest Rates: As the cost of borrowing rises, investors typically demand higher Cap Rates to justify the investment, which can push property prices down.
{
"@context": "https://schema.org",
"@type": "FAQPage",
"mainEntity": [{
"@type": "Question",
"name": "What is included in Operating Expenses for Cap Rate?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Operating expenses include property taxes, hazard insurance, property management fees, maintenance, repairs, utilities paid by the landlord, and landscaping. It does NOT include mortgage principal or interest payments, capital expenditures (like a new roof), or income taxes."
}
}, {
"@type": "Question",
"name": "Why do we exclude mortgage payments from Cap Rate?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Cap Rate is designed to measure the performance of the property itself, independent of the investor's financing method. This allows for an apples-to-apples comparison between two properties regardless of whether one investor pays cash and another takes out a loan."
}
}, {
"@type": "Question",
"name": "Is a higher Cap Rate always better?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Not necessarily. A higher Cap Rate implies a higher annual return, but it usually comes with higher risk, such as a worse location, older building, or tenant instability. A lower Cap Rate usually indicates a safer, more stable investment."
}
}]
}