About Cap Rate Calculator (Formula)
The Cap Rate Calculator is a tool used to calculate the capitalization rate of an income-generating property. The cap rate is a measure of the property’s profitability and is expressed as a percentage. It is calculated by dividing the net operating income (NOI) of the property by its market value.
The formula used in the Cap Rate Calculator is as follows:
CR = NOI / MV
Where: CR = Cap Rate NOI = Net Operating Income ($) MV = Market Value ($)
To calculate the cap rate, the net operating income of the property is divided by its market value. The resulting figure is the cap rate, expressed as a percentage. The cap rate is an important metric for investors and real estate professionals because it provides a quick way to assess the profitability of a property and compare it to other investment opportunities.
A high cap rate indicates a property is more profitable, while a low cap rate indicates a property is less profitable. Cap rates can vary widely depending on the type of property, its location, and other factors. For example, a commercial property may have a higher cap rate than a residential property, reflecting the higher risk and potential for higher returns.