# Cap Rate Calculator The cap rate calculator can be used to accurately calculate the capitalization rate of real estate. In the real estate lending and appraisal sector, the cap rate is a valuable metric that uses the amount of income a property is able to generate as the means of estimating that property's value.

Capitalization Rate Calculator

Results
Capitalization Rate (Cap Rate): 5.2%
Gross Operating Income = Gross Rental Income − Vacancy Allowance

Gross Operating Income = \$20,000 − \$1,000 = \$19,000

Net Operating Income (NOI) = Gross Operating Income − Operating Expenses

Net Operating Income = \$19,000 − \$6,000 = \$13,000

Capitalization Rate = Net Operating Income / Purchase Price

Capitalization Rate = \$13,000 / \$250,000 = 5.2%

Capitalization Rate = 5.2%

Related

## What is a Cap Rate?

The capitalization rate, more commonly known by its abbreviation "cap" rate, is widely used to evaluate the worth of investment properties and calculate potential returns on investment.

The cap rate reflects your investment property's rate of return as measured by the amount of income you expect the property to produce.

This measurement can be more simply described as the ratio of net operating income to property asset value.

A cap rate is generally expressed as a percentage, with a higher percentage indicating a better rate of return but also an increased level of associated risk.

## Capitalization Rate Formula

We apply the following formulas in our cap rate calculator to determine the capitalization rate for your property:

Capitalization Rate = Net Operating Income / Purchase Price

Net Operating Income (NOI) = Gross Operating Income − Operating Expenses

## Cap Rate Calculator Example

Certainly! Here's an example of using a cap rate calculator with a table to calculate the capitalization rate:

Assume the following information for a property:

Property Net Operating Income (NOI) Purchase Price
Property A \$50,000 \$500,000
Property B \$70,000 \$800,000

To calculate the capitalization rate, we can use the table:

Property Net Operating Income (NOI) Purchase Price Capitalization Rate
Property A \$50,000 \$500,000 -
Property B \$70,000 \$800,000 -
1. Calculate the capitalization rate for Property A: Capitalization Rate = NOI / Purchase Price = \$50,000 / \$500,000 = 0.10 or 10% (as a decimal)

2. Calculate the capitalization rate for Property B: Capitalization Rate = NOI / Purchase Price = \$70,000 / \$800,000 = 0.0875 or 8.75% (as a decimal)

Therefore, the capitalization rates for Property A and Property B would be 10% and 8.75%, respectively.

Using a table allows you to compare the net operating income and purchase price for different properties and calculate the corresponding capitalization rates. The table provides a clear overview of the relevant information, making it easier to evaluate and compare the potential returns on investment for different properties.