Cap Rate calculator

Cap Rate Calculator?

Cap Rate calculator is a great tool to people that are interested in the commercial real estate industry, this tool can help you calculate the capitalization rate for a real estate proprety.
The Cap Rate is calculated by dividing your Net Operating Income by the market value of your property.

For example if you have a a proprety with a stabilized Net Operating Income (NOI) of $50,000 and a sale price of $1,000,000, the cap rate in this case is: 50,000/1,000,000 = 5%

This calculator contain six inputs "Proprety Value" (USD), "Annual Gross Income" (USD), "Operating Expenses" (%), "Vacancy Rate" (%), "Annual Net Income" (USD) and "Cap Rate" (%).
The Cap Rate could be calculated using only two of the five inputs, if the user enter only the "Proprety value" and "Annual Net Income" the "Cap Rate" will be automatically calculated. The user can also include other expenses like the "Operating Expenses" and "Vacancy Rate" to have a precise "Annual Net Income" so a precise Cap Rate value, "Operating Expenses" and "Vacancy Rate" are a percentages of the "Annual Gross Income" to get the "Annual Net Income".

Cap Rate Formulas

The Cap Rate measure the relationship between the net income generated by a real estate property and the commercial price of the proprety, it is calculated by dividing the Annual Net income By the Proprety Value .

To calcluate the Cap Rate manually we can use this formula:
Cap Rate = Annual Net Income / Proprety Value
The units of Annual Net Income and Proprety Value is the USD, so the unit of Cap Rate will be a percentage (%).

If you are a professional investor you could use other parameters like Operating Expenses and Vacancy Rate to get a more precise result. In that case the Annual Net Income will be calculated using Operating Expenses, Vacancy Rate and the Annual Gross Income.

To calculate the Annual Net Income we can use this formula:
Annual Net Income = Annual Gross Income * (100 - Operating Expenses) * (100 - Vacancy Rate)

How To Caculate the Cap Rate

In this section we will represent how to calculate the Cap Rate with an example.
To calculate the Cap Rate you should follow these steps:

You should start by determining the proprety value, lets suppose that the proprety value is $500,000.
Then you should determine the Annual Gross Income, that's the income that comes from your proprey in one year, we will use $80,000 in our example.
Then you should find an approximate Vacancy Rate, let's suppose that the proprety stays unoccupied for 4% of the year.
After that you should calculate your total expenses for one year, lets says the total expenses for one year is $8,000 so the Operating expenses equal to 10%.
Now you should be able to calculate the Annual Net Income by using the formula above.
Annual Net Income = 80,000 * (100-4) * (100-10) = $69,120
The last step is to calculate the Cap Rate also by using the formula above.
Cap Rate = 69,120 / 500,000 = 13.82 %