Capitalization Rate (Cap Rate) Calculator
Property Value: 5000000
Annual Rental Income: 600000
Annual Operating Expenses: 100000
Net Operating Income: 600000 - 100000 = 500000
Expected Calculation: (500000 / 5000000) * 100 Expected Result: 10.00%
Trying to understand how efficiently a rental property is producing income?
The Prozameen Cap Rate Calculator gives you a quick estimate by comparing the property's net operating income with its current value.
It is a simple way to look at the income performance of a property before considering mortgage financing or future price growth.
What is Cap Rate?
Cap rate, short for capitalization rate, shows the estimated annual operating return of a property compared with its value.
It is commonly used when comparing income-producing properties.
How to Use the Calculator
Enter:
- Property Value
- Annual Rental Income
- Annual Operating Expenses
The calculator will estimate the property's capitalization rate.
Cap Rate Formula
Cap Rate = Net Operating Income ÷ Property Value × 100
Net Operating Income is:
Annual Rental Income - Annual Operating Expenses
Example
Suppose a property has:
- Property Value: 5,000,000
- Annual Rental Income: 600,000
- Annual Operating Expenses: 100,000
Net Operating Income:
500,000
Estimated Cap Rate:
10%
What Does the Result Mean?
A 10% cap rate means the property's estimated annual net operating income is equal to around 10% of its value.
That does not automatically mean the property is a good or bad investment.
Different locations, property types and markets can have very different typical cap rates.
Investors can compare cap rate with the Cash-on-Cash Return Calculator when mortgage financing and actual invested capital are also important.
What Should Be Included in Operating Expenses?
Operating expenses may include costs such as:
- Property management
- Maintenance
- Insurance
- Service charges
- Property taxes
- Other recurring operating costs
Mortgage payments are generally not included in cap rate calculations because cap rate focuses on the property's operating performance before financing.
Important Information
Cap rate depends heavily on Net Operating Income (NOI), so understanding which expenses are included in NOI is essential before interpreting the result.
Cap rate is only one way to evaluate a property.
It does not include mortgage payments, future property appreciation, capital gains, selling costs or every possible tax consideration.
Results are estimates for informational and educational purposes only.
