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Calculate the Capitalization rate (Cap Rate) based on the value of a property and the income recieved from renting the property.
|Gross Rental Income:|
|Vacancy Rate %:|
|Capitalization Rate (Cap Rate):|
Investing in real estate has always been lucrative, especially investing in commercial properties as it generates a good rental income. Capitalization rate, also known as Cap rate is a method to determine the approximate rate of return that is to be generated on real estate investments.
Cap rate is the most popular method to assess the profitability of real estate investments. It is most useful for comparing the returns on investments that are earned by similar real estate properties.
The cap rate calculator shows you the rate as a percentage that your property can earn in a given period of time. The base formula for cap rate calculations is stated below:
To calculate cap rate, first you need to calculate the net operating income (NOI):
However, the calculator makes it easier for you to get into the calculations as it gives you the quickest possible results with the input of simple values, like.
On the basis of inputs made by you, the calculator will show you the estimated yield on your investment.
Using Cap rate calculator can really help you make better decisions for your real estate investments. Let's see how it can help:
Cap rate should ideally be used prior to purchase of a property. This is typically used by both, landlords and investors who purchase real estate to hold and sell. However, it also makes sense to calculate cap rate if the property is currently rented. The method can be used for:
There are many scenarios where the cap rate method is appropriate. However, there are situations where you shouldn't use this method:
Cap rates are based on the projected estimates of rental returns. This makes them highly variant. In general terms the higher the cap rate the higher the profits. Buyers generally want high cap rates. This means lower property rates and high rental income. However, higher cap rate also means higher risks.
An investor needs to weigh in the risk before making any big investments. A property with high cap rate may take expected rates instead of actual occupancy rate. There is also a possibility of the property having a lower cap rate, but the property could be in an expensive area etc. which will make it beneficial in other ways. To get a clear picture of your real estate investment ascertain first how the cap rate was derived.
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