Interpretation:Enter values to see interpretation.
function calculateCapRate() {
// 1. Get Elements
var priceInput = document.getElementById("propertyPrice");
var incomeInput = document.getElementById("grossIncome");
var expensesInput = document.getElementById("opExpenses");
var vacancyInput = document.getElementById("vacancyRate");
var noiDisplay = document.getElementById("resultNOI");
var capRateDisplay = document.getElementById("resultCapRate");
var resultsArea = document.getElementById("resultsArea");
var errorMsg = document.getElementById("errorMsg");
var feedbackDisplay = document.getElementById("capRateFeedback");
// 2. Parse Values
var price = parseFloat(priceInput.value);
var grossIncome = parseFloat(incomeInput.value);
var expenses = parseFloat(expensesInput.value);
var vacancyRate = parseFloat(vacancyInput.value);
// 3. Validation
if (isNaN(price) || isNaN(grossIncome) || isNaN(expenses) || price <= 0) {
errorMsg.style.display = "block";
errorMsg.innerHTML = "Please enter valid positive numbers for Price, Income, and Expenses.";
resultsArea.style.display = "none";
return;
}
// Handle vacancy default if empty
if (isNaN(vacancyRate)) {
vacancyRate = 0;
}
errorMsg.style.display = "none";
// 4. Calculation Logic
// Effective Gross Income = Gross Income – (Gross Income * (Vacancy / 100))
var vacancyLoss = grossIncome * (vacancyRate / 100);
var effectiveIncome = grossIncome – vacancyLoss;
// Net Operating Income (NOI) = Effective Income – Operating Expenses
var noi = effectiveIncome – expenses;
// Cap Rate = (NOI / Property Price) * 100
var capRate = (noi / price) * 100;
// 5. Update UI
resultsArea.style.display = "block";
// Format Currency
noiDisplay.innerHTML = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Format Percentage
capRateDisplay.innerHTML = capRate.toFixed(2) + "%";
// 6. Dynamic Feedback
var feedback = "";
if (capRate = 4 && capRate = 8 && capRate < 12) {
feedback = "This is a strong Cap Rate, suggesting good cash flow relative to price. Verify that deferred maintenance or location issues aren't inflating the risk.";
} else {
feedback = "This is a very high Cap Rate. While the returns look excellent, be wary of high risks, unstable tenants, or significant repair costs.";
}
feedbackDisplay.innerHTML = feedback;
}
Understanding Capitalization Rate in Real Estate
The Capitalization Rate, or "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 focuses purely on the property's ability to generate cash flow relative to its purchase price, assuming an all-cash purchase.
How is Cap Rate Calculated?
The formula for Cap Rate is relatively simple but requires accurate inputs regarding the property's finances. The formula is:
Cap Rate = (Net Operating Income / Current Market Value) × 100
To use the calculator above effectively, you need to understand the components:
Property Price: The purchase price or current market value of the asset.
Gross Income: The total potential rental income the property generates in a year if fully occupied.
Vacancy Rate: The percentage of time units sit empty. This is subtracted from Gross Income to find Effective Gross Income.
Operating Expenses: All costs required to run the property (taxes, insurance, utilities, management fees, repairs). Note: This does NOT include mortgage payments (debt service).
Net Operating Income (NOI): The money remaining after all operating expenses are paid, but before debt service.
Example Calculation
Let's look at a realistic scenario for a small multi-family property using the logic from our calculator:
Step 2: Calculate Cap Rate
($42,000 / $500,000) = 0.084
0.084 × 100 = 8.4% Cap Rate
What is a "Good" Cap Rate?
There is no single "good" Cap Rate because it varies heavily by location and asset class. However, general guidelines include:
4% – 6%: Common in high-demand "Tier 1" cities (like NYC or San Francisco). These properties usually appreciate in value but offer lower immediate cash flow.
6% – 8%: Often considered a healthy balance for suburban residential properties or stable commercial buildings.
8% – 12%+: Common in rural areas or lower-income neighborhoods. These properties generate high cash flow but often come with higher risk (e.g., tenant turnover, older buildings).
Always use the Cap Rate in conjunction with other metrics like Cash-on-Cash Return and Internal Rate of Return (IRR) for a complete picture of an investment.