Below is an cap rate calculator, or capitalization rate calculator. Enter a real estate investment's net operating income and market value (alternatively, purchase price) to compute the property's expected cap rate.
EV/Gross Profit Calculator
Using the Capitalization Rate Calculator
Using your estimates, or books on a property, enter the following values
- Net operating income: The total annual income of a property – rents, membership costs, fees, vending, etc. – net of its expected operating costs.
- Property Market Value: The estimated value of the property on the open market today. Alternatively, you can use value after selling (net of fees and transaction costs).
For an alternative view, you can use purchase price – although depending on how long you have held the property, this might be quite different than what the property is worth in the market.
Once done, hit the "Compute Cap Rate" button to calculate estimated cap rate.
What is the Capitalization Rate or Cap Rate?
The capitalization rate is the rate of return on a real estate investment based on either the current market price of the investment – or the purchase price.
By summing up all of the sources of income for a property (rent, memberships, fees, laundry, vending, etc.) and coming up with a NOI or net operating income which nets out any continual costs.
Cap rate is used to normalize real estate returns to better make them comparable to other investments. For example, taking the expected percentage return you find from the cap rate calculation means you can compare the expected returns on other investments, say in the stock market or with bonds or treasuries.
Another common ratio in real estate valuation is the price to rent ratio. Price to rent only uses rent as an input, and doesn't net out any operational costs. It also doesn't adjust for additional income generating possibilities with a property – which can be anything from vending machines to laundry to video games to storage, or more. It's a conservative metric, but you could also take other forms of income out and net out operational costs as a more conservative look than NOI.
