Cap Rate Calculator
Calculate capitalization rate for real estate investment analysis and property valuation
Calculate Cap Rate
Market value or purchase price of the property
Total rental income received per year
Percentage of time property stays unoccupied
Typical range: 25-45% of gross income
Cap Rate Results
Formula: Cap Rate = Net Operating Income ÷ Property Value × 100
Calculation: $0 ÷ $0 × 100 = 0.00%
Example Calculation
Commercial Property Example
Property Value: $500,000
Annual Gross Income: $60,000
Vacancy Rate: 5%
Operating Expenses: 30% of gross income
Calculation Steps
1. Effective Gross Income = $60,000 × (1 - 0.05) = $57,000
2. Operating Expenses = $60,000 × 0.30 = $18,000
3. Net Operating Income = $57,000 - $18,000 = $39,000
4. Cap Rate = $39,000 ÷ $500,000 × 100 = 7.8%
Cap Rate Guidelines
Typical cap rate ranges vary by property type and location
Operating Expenses
Note: Does NOT include mortgage payments, depreciation, or income taxes
Investment Tips
Compare cap rates with similar properties in the area
Higher cap rates indicate higher risk or returns
Consider market trends and interest rates
Use cap rate for initial screening, not final decisions
Understanding Cap Rate
What is Cap Rate?
The capitalization rate (cap rate) is a fundamental metric used in real estate investing to evaluate the rate of return on a property investment. It represents the ratio of net operating income to property value, expressed as a percentage.
Why Use Cap Rate?
- •Compare different investment properties
- •Determine fair market value
- •Assess investment risk and return potential
- •Make informed buying and selling decisions
Cap Rate Formula
Cap Rate = NOI ÷ Property Value × 100
Where NOI = Net Operating Income
NOI Calculation
NOI = Effective Gross Income - Operating Expenses
Effective Gross Income = Gross Income × (1 - Vacancy Rate)
Remember: Cap rate excludes financing costs and provides a pure measure of property performance