Capitalization Rates (commonly called “Cap Rates”) are real estate valuation metrics that are commonly used among real estate investors to compare different investment properties. Our Cap Rate Calculator is a convenient tool for investors to easily understand and calculate cap rates for investment properties.
Calculate Cap Rate
Cap Rate Formula
The standard mathematical formula for calculating capitalization rate is noted below. Note that you will first need to determine Net Operating Income and Fair Market Value values first to input into calculation.
Cap Rate = (Net Operating Income1)/(Fair Market Value2)
1. Net Operating Income – A property’s gross operating income, minus its operating expenses.
2. Property Value – Also sometimes called Fair Market Value, is the price in which someone is willing to pay for a property and the amount the seller is willing to accept.
Cap Rate Definition
Cap Rate is the ratio of Net Operating Income (NOI) to Property Value and also a valuation metric used to estimate the expected rate of return when comparing multiple investment real estate properties.