Cap Rate Calculator
Calculate a property’s Capitalization Rate (Cap Rate), Effective Gross Income (EGI), Net Operating Income (NOI), and Operating Expense Ratio (OER) excluding debt service.
Net Operating Income (NOI) & Property Value
Operating Expense Ratio (OER): 29.82%
Capitalization Rate (Cap Rate) Formula
NOI = Effective Gross Income − Annual Operating Expenses (Excl. Debt) | Cap Rate (%) = (NOI ÷ Property Value) × 100- Effective Gross Income (EGI) = Annual Gross Rental Income − Vacancy & Credit Loss.
- Net Operating Income (NOI) = EGI − Operating Expenses (property taxes, insurance, maintenance, management, HOA; never include mortgage payments).
- Operating Expense Ratio (OER) = (Annual Operating Expenses ÷ EGI) × 100.
Step-by-Step Worked Example
Calculation Steps:
- Net Operating Income (NOI) = $39,900 − $11,900 = $28,000/year ($2,333.33/month)
- Capitalization Rate = ($28,000 ÷ $420,000) × 100 = 6.67%
- Operating Expense Ratio (OER) = ($11,900 ÷ $39,900) × 100 = 29.82%
How to Use This Calculator
- 1Enter the property purchase price or current market valuation.
- 2Enter the annual gross potential rental income.
- 3Specify vacancy and credit loss as a percentage or dollar amount, and enter annual operating expenses (excluding mortgage payments).
Assumptions & Limitations
- Cap Rate is an unleveraged metric—mortgage principal and interest are strictly excluded from NOI so properties can be compared on an apples-to-apples basis.
- Supports both residential rentals and commercial income properties.
Frequently Asked Questions
Why are mortgage payments excluded from the Cap Rate calculation?
Cap Rate measures the intrinsic yield of the property itself as if purchased 100% in cash. Every buyer has different down payments, credit scores, and loan terms; excluding debt service lets investors compare properties fairly.
How can I use Cap Rate to value a property?
By rearranging the formula (Property Value = NOI ÷ Cap Rate), you can divide a property’s Net Operating Income by the prevailing market Cap Rate to estimate its fair market value.
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