Cap Rate Calculator: The Ins and Outs of Real Estate Cap Rates

Considered to be the most utilized formulations you will ever witness in the realm of real estate investment is a capitalization rate, or more commonly known as “cap rate”. But, what does it really mean to real estate and where you should utilize it for? Unravel the ins and outs of cap rate and use our very own cap rate calculator to know the specific value for an investment unit you are eyeing. You can also find out what specific price would shoulder you the cap rate you are eyeing.

Selecting the appropriate investment property is basically about the amount of money you will acquire in contrast with the amount of money you put into investing. An effective investment comprise of proper balance and realized income with a conservative amount of risk.

The balance for each investor is varying. Coming up with the proper decisions relating to real estate investment involves paying close attention to each property and selecting one that makes up all your preferences. A very common thing investors look for primarily is the cap rate of the property.


UNDERSTANDING THE PRINCIPLE OF CAP RATE. More commonly known as capitalization rate. This principle denotes the percentage of the purchase price, a property invested presently generates not in gross, but in net income. The capitalization rate is basically computed before taking any kind of loans, or paying loans into account. You can regard cap rate as return on investment or ROI, a real estate investment would give you if such a unit was bought in cash and the income is at the same rate. 

Say for example, the purchase price of the property is one million dollar and the yearly net operating cost is fifty thousand dollars (50,000.00 usd), the cap rate is usually around 5% since  the latter is 5% of one million.

REASONS ON WHY A CAP RATE IS USED. Cap rates supply an investor a general knowledge of the performance of the property you are eyeing for. An investor may not spend a significant amount of time contemplating a property with a low cap rate since they can be easily regarded that they will most likely won’t provide prospective ideal income. The investor would be focusing its attention on a property that has a cap rate within the specific range they are eyeing.

A cap rate can also come up with the amount an investor wants to pay for a specific property. In the event that your preference involves a cap rate, you can easily specify the price to obtain that cap rate with the basis of the present net income.

On the other hand, lenders also used cap rates in the event that they are underwriting a loan. It will aid the lender in deciding if the income generated from the property is sufficient to cover the payments of the loan. It will also give them the idea on what loan to value ratio they can give.

Syndication Regulat Cap rate Calculator. If you already have an idea with the NOI of the property, you can just simply enter it below the purchase amount to see the value of the cap rate. In getting the Net Operating Income, you can simply input the gross income and the operational expenses.

Are you trying to come up with a figure in terms of the amount of your investment property or you just want to offer an investment? Just click on the price tab and put the value of the NOI as well as the market cap rate.


Mulling over an excellent cap rate is basically dependent on several factors. It is dependent on what your entire goals are in terms of investment, the type of property, its location, and a lot of things. 

Definitively, an efficient cap rate is one that supplies an excellent return as compared to other same investments. If you are eyeing for a class c apartment unit in a community with a “not-so-good” value and slowly declining, a fair cap rate will be much higher than that of a class A unit in a steady or increasing market. 

Say for instance, Cordone Capital looks into investing in class A properties in increasing markets simply because they shell out excellent returns on investments coupled with a very minimal risk. Generally, the cap rate on these will also be lower than a property coupled with a high risk level. 

Properties that are considered high risk may be enticing and eye candy because of the potential returns, but mind you, there is a big chance that you can lose the entire property. The odds of any single family unit becoming a loss is not that high. But, if you are propagating and cultivating a portfolio of multiple units, the odds of one high risk property becomes negligible. 

In the event that only a sole property in your portfolio goes up, that will not ruin the ROI across the entire portfolio. Not to mention the drastic fluctuations in occupancy as well as the higher maintenance and repair expenses  going out on a yearly basis will have  small effect.

In order to have an idea of an efficient cap rate, you can take a look at average cap rate, as well as other types of investment metrics and formulations published by Costar and Loopnet.

PARAMETERS THAT AFFECTS CAP RATES. Just like interests on CDs or bonds, or even bank charges for a mortgage, cap rates fluctuate. These variations fluctuate based on the supply and demand in the market. When a lot of buyers are competing over similar properties, it is natural that prices will surely go up. It simply means that a higher price gets a lower cap rate. If sellers are having difficulties looking for buyers for their real estate properties, they basically begin lowering the purchase price. Now, a lower price means a higher cap rate. 

Interest rates on mortgage also play a very important role in cap rates. In the event that the rate of mortgage increases, it means that the difference between what an investor is paying for the money as well as what they are getting from such investment is smaller. The bottom line is that they are making less income. It is a known fact that investors may demand higher cap rates which translate to lower sales prices. 

Ergo, it is imperative to obtain an attractive rate of interest from your lender. The lower you are shelling out in interest, the less vulnerable you are to altering rates. This will translate to higher cash flow as well. If you are not able to obtain enticing interest rates, you might partner with an investor who has the ability like The Apartment Queen. It is a known fact that interest rates can play a major role in the cash flow you obtain on a monthly basis as well as the equity you acquire.

Pricings for new construction also affects cap rates. In the event that more units are being constructed within the vicinity, the demand for leasing residential apartment properties may lessen. This can have a very high rate of vacancy as well as haggling for lower rates. Intelligent real estate investors can realize which areas are ripe for development and tailor their investment strategy with the assumption and foresight that there will be apartment units that will be constructed in the future. 



A cap rate is just a facet to regard investment property. The cap rate gives you the return on investment linked to the present income as well as the assumption that you are paying cash. The truth of the matter is, the Net Operating Income will vary, and you will leverage the investment. Another thing is that the real estate will appreciate and such that you will build equity.

Simply put, these parameters play a very big role in the entire return you will earn on your investment. Other considerations you require looking at in terms of return on investment (ROI):

Internal Rate of Return (IRR): The IRR is a formulation that showcases an excellent idea of what the Return on investment (ROI) will be over the matured term of the said investment, instead of just the present period like a cap rate. 

Cash-on-cash Return: This is the value of cash in your pocket annually, after loan payments, as compared to the value of cash you put into the investment. This also considers loans on the property.

Equity multiple: As an investor, you are paying the principal balance on your loan on a monthly basis with the rental income. The two are inversely proportional because as the balance decreases, the equity in the property increases. When it is time to sell the property, you will acquire more than the case you put into it. You may put one million dollars in an investment and you might obtain another two hundred thousand dollars back if you sell in say, four years. 

On the other hand, people are asking if a property with a good cap rate will be considered a good investment. The simple answer to this query is NO. It is a guideline in specifying if a property will obtain cash flow, but it does not specify if such investment is viable or not.

The fundamental factors to look at when selecting a real estate investment are:

  • Cash flow. The property should have positive and good flow of cash at the onset. It has to be an efficient producer of income.


  • Number of units. The more units the property possesses, the easier you can enhance the overall income.


  • Friendly Debt. Banks must be able to lend on it and be on top of the game with practical financing terms and good interest rates. 


  • Location. Must be in a strategic location that will continue to boost up. You cannot pay too much for a great location.


  • Competitive Market. You want to eye on properties that have tons of interest. IF nobody is running after it now, there is a great chance that nobody will run for it five to ten years from now.




Basically, a cap rate is not a complicated formulation. The most essential thing to perform before you calculate the cap rate is to arrive at the net operating income (NOI) of the property.

Do not be confused with the NOI the broker is advertising. It should be the NOI that you calculate after reading over the financials. You need to watch out for sellers incorporating back expenditures that are not included, or basing it off a projection for the next one year.

You have to take a look at the present yearly gross income, then subtract the operating expenses and depreciation, as well as the interest expense and all other that should be added back.

Simply put, 

Net Operating Expense (NOI) = Gross income – operating expenses.

Then divide the NOI by the purchase price.

Cap Rate = NOI/Purchase price

Since the answer will be in decimal, you have to convert it to a percentage by simply multiplying it by 100. 


Let’s have an example

Purchase price: $5,000,000
NOI: $600,000

$600,000 / $5,000,000 = 12% (.12)



Computing for the capitalization rate is an essential thing to perform when eyeing for a real estate investment but it practically should not be the only vehicle used to come up with a solid decision on purchasing a property. There are several more other things and factors that compose to come up with a better picture of an ideal investment property. You have to take all of it into consideration before you come up with a sound offer. 

Having an idea what a capitalization rate is will aid you come up with the appropriate properties to eye for. However, you have to ensure that you check all the boxes on a property you are referring to. If you have a determinable criteria, you are better off being patient and waiting for the right property instead of impulsive decisions on something that is not appropriate for you.

In the event that you decide on investing on individual or single family properties is not the right one for you, then investing in Apartment Securities will give you the freedom to get in touch with professionals that study tons of deals and invest securely with a fair risk and great returns.

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Kaylee McMahon

Apartment investor/ TREC® Brokerage LLC Owner


c: 469-990-4627 (text or call)

IG: theapartmentqueen_



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