Cap Rate Calculator
Analyze real estate investment returns instantly.
Cap Rate
8.00%
Net Operating Income
$40,000
Understanding Cap Rate
The Capitalization Rate (Cap Rate) is a fundamental metric used in real estate to estimate the potential return on an investment property. It indicates the rate of return that is expected to be generated on a real estate investment property.
The Formula
Cap Rate = Net Operating Income / Property ValueImportant Components
- Net Operating Income (NOI): Total revenue from the property minus all necessary operating expenses. NOI is a before-tax figure and excludes principal and interest payments on loans.
- Property Value: The current market value or purchase price of the asset.
FAQ
What is a good Cap Rate?
A 'good' cap rate varies by market and asset class. Generally, 4% to 10% is considered typical. Higher cap rates imply higher risk and higher potential return, while lower cap rates imply safer, lower-return assets.
How do I calculate NOI?
Net Operating Income (NOI) is calculated by subtracting all operating expenses (taxes, insurance, maintenance, property management) from the total income generated by the property. It excludes mortgage payments.
Does Cap Rate include mortgage payments?
No. Capitalization Rate is a measure of an unleveraged return on investment. It does not account for debt service (mortgage payments).
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