Cap Rate Calculator
Calculate the capitalization rate for investment properties to evaluate potential returns and compare investment opportunities.
Property Information
$
Current market value or purchase price
$
Gross annual rental income
$
Property taxes, insurance, maintenance, management fees
Cap Rate Analysis
Capitalization Rate
7.3%
Good Investment
Calculation Breakdown
Annual Rental Income
$30,000
Annual Operating Expenses
$8,000
Net Operating Income (NOI)
$22,000
Property Value
$300,000
Cap Rate Guidelines
Excellent (8%+):
High return, higher risk
Good (6-8%):
Balanced return and risk
Fair (4-6%):
Lower return, safer investment
Poor (<4%):
Low return, may not be profitable
Understanding Cap Rate
What is Cap Rate?
The capitalization rate (cap rate) is a key metric used in real estate investment to evaluate the potential return on investment. It's calculated by dividing the Net Operating Income (NOI) by the property value.
Formula: Cap Rate = (NOI ÷ Property Value) × 100
How to Use Cap Rate
- • Compare Properties: Use cap rates to compare similar investment opportunities
- • Assess Risk: Higher cap rates typically indicate higher risk but higher potential returns
- • Market Analysis: Compare your property's cap rate to local market averages
- • Investment Decisions: Set minimum cap rate thresholds for your investment criteria
Understanding Cap Rates
Good Cap Rates
- • 4-6%: Premium properties
- • 6-8%: Good investments
- • 8-10%: High return areas
- • 10%+: Higher risk/reward
Factors Affecting Cap Rate
- • Location quality
- • Property condition
- • Market conditions
- • Property type
- • Economic factors
Using Cap Rates
- • Compare properties
- • Estimate property value
- • Assess market trends
- • Investment decisions
- • Portfolio analysis