A cap rate, short for capitalization rate, is the rate of return on a real estate investment property. This rate tells you what percentage of your initial investment will return to you every year.
For example, if you buy a property for $200,000 and earn $20,000 per year in gross income from the property, the cap rate is 10%.
To find the cap rate for a given property, fill in the values below and then click the “Calculate” button.
The following formula is used to calculate the cap rate:
Cap rate = net income / property value
where net income = (100 – operating expenses)% * (100 – vacancy rate)% * gross income