Real estate & rental
Real Estate Agent Cap Rate Calculator
Works cap rate for an agent advising on income property, where the expense assumptions are the advice.
Result
Not investment advice. The expense ratio is doing most of the work here and a seller's pro forma almost always understates it. Verify against actual statements, tax records and insurance quotes before an investor relies on the number.
Get a Free Business AuditHow the calculation works
Net operating income divided by price, with the expense assumptions shown. For an agent presenting a property to a buyer, the value is in the assumptions rather than the resulting percentage, since a cap rate presented without its expense basis is a number the buyer cannot check.
What moves the number
- Which expenses are included in net operating income.
- Vacancy and management allowances.
- Whether figures are actual or pro forma.
- The price used as the denominator.
Where this one goes wrong
Presenting a seller's pro forma cap rate as though it were actual performance is where agents get into difficulty, because the pro forma typically assumes full occupancy, self-management and no reserve. Label the basis clearly and present both the seller's figures and a version on conservative assumptions. That is better service and it is also the safer position if the property underperforms.
Before you quote
- Label figures clearly as actual or pro forma.
- Present a conservative version alongside the seller's.
- Show the expense assumptions, not just the percentage.
Questions
About this calculator
Should an agent present the seller's cap rate?
Only clearly labelled as the seller's pro forma, and ideally alongside a version on conservative assumptions. Pro formas typically assume full occupancy, self-management and no reserve, none of which a buyer should expect to achieve.
What does a cap rate need to be useful?
Its expense basis. A percentage without the assumptions behind it is a figure the buyer cannot check or compare, and presenting it that way invites exactly the disappointment that becomes a complaint later.
What is the difference between actual and pro forma?
Actual reflects what the property has done; pro forma reflects what someone projects it could do, usually at full occupancy and optimised rents. The gap between them is frequently large, and labelling which is which is the minimum.
The formula
cap rate = NOI / price; target price = NOI / target cap rate
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How to use this calculator
- Asking price ($). Enter your own figure; the page starts at $385,000.
- Monthly rent ($). Enter your own figure; the page starts at $3,200.
- Operating expenses as a share of rent (%). Include vacancy, maintenance, management and reserves.
- Property taxes per year ($). Enter your own figure; the page starts at $4,800.
- Insurance per year ($). Enter your own figure; the page starts at $1,600.
- Client's target cap rate (%). Enter your own figure; the page starts at 6.5%.
The result updates as you type, so you can try a figure, see what it does to cap rate, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Asking price | $385,000 |
| Monthly rent | $3,200 |
| Operating expenses as a share of rent | 40% |
| Property taxes per year | $4,800 |
| Insurance per year | $1,600 |
| Client's target cap rate | 6.5% |
What comes out
| Result | Value |
|---|---|
| Cap rate main result | 4.32% |
| Net operating income | $16,640 |
| Price that hits the target | $256,000 |
| Gap to the target price | $129,000 |
| Gross yield | 9.97% |
Cap rate is 4.32% at the asking price. To hit your client's 6.5 target the price needs to be $256,000, a gap of $129,000, which is a concrete basis for an offer rather than a feeling.
How sensitive the answer is
Holding everything else steady and changing only asking price, this is what happens to cap rate. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Asking price ($) | Cap rate |
|---|---|
| $192,500 | 8.64% |
| $288,750 | 5.76% |
| $385,000 example above | 4.32% |
| $577,500 | 2.88% |
| $770,000 | 2.16% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Asking price ($)
- A money amount, starting at $385,000.
- Monthly rent ($)
- A money amount, starting at $3,200.
- Operating expenses as a share of rent (%)
- Include vacancy, maintenance, management and reserves.
- Property taxes per year ($)
- A money amount, starting at $4,800.
- Insurance per year ($)
- A money amount, starting at $1,600.
- Client's target cap rate (%)
- A percentage, between 0 and 20, starting at 6.5%.
What the results tell you
| Result | What it is |
|---|---|
| Cap rate | The headline result. A percentage. |
| Net operating income | A money figure. |
| Price that hits the target | A money figure. |
| Gap to the target price | A money figure. |
| Gross yield | A percentage. |
What is not in this number
Property figures here exclude the costs that decide whether a deal works: vacancy, maintenance, management, capital expenditure and the transaction costs at both ends. A return that looks strong before those frequently does not survive them.
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