Purpose and steps
Effective income = gross rent and other income × (1 − vacancy rate). NOI = effective income − operating expenses. Cap rate = NOI / property price; target price = NOI / target cap rate. The calculation runs locally and keeps cash-flow timing consistent with the stated assumptions.
- Confirm currency and monthly versus annual amounts. U.S. tax and loan models should be used within their stated scope.
- Prepare Annual gross rent, Annual other property income, Vacancy allowance, Annual operating expenses, Property price, Target cap rate. Defaults demonstrate the model rather than your personal circumstances.
- Check the headline result and its components. A key interpretation for this tool is: Cap rate excludes mortgage payments so properties can be compared independent of financing.
- Compare the baseline with a changed scenario: A target cap rate is a required-return assumption, not a market valuation guarantee.
Input reference and units
These values reproduce the model’s demonstration. Replace them with your own records or measurements; they are not recommended targets.
On a small screen, swipe the table horizontally to see all columns.
| Parameter | Demonstration value | How to enter it |
|---|---|---|
| Annual gross rent | 30000 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Annual other property income | 0 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Vacancy allowance | 5 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
| Annual operating expenses | 7200 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Property price | 450000 USD | Use dollars and the monthly or annual period stated in the field label; do not enter thousands of dollars. |
| Target cap rate | 7 % | Enter a percentage such as 6.5, not 0.065. The equation converts it to a decimal. |
Model-specific method
How this calculator produces its result
Effective income = gross rent and other income × (1 − vacancy rate). NOI = effective income − operating expenses. Cap rate = NOI / property price; target price = NOI / target cap rate.
Ratios: the denominator changes the meaning
A percentage has no useful meaning without its denominator. A $50 profit on $150 sales is a 33.33% margin, but the same profit on $100 cost is 50% markup. Changing the denominator changes the question, not the dollars earned. The same distinction applies to return on invested cash, return on property value and debt as a share of income.
An average of rates should normally reflect exposure. With loans of different sizes, use balance weights rather than averaging APR labels. A zero denominator yields an undefined ratio, not evidence of zero risk. Compare ratios only when the numerator, time period and accounting conventions match.
Ratio = numerator / denominator Margin = profit / revenue Markup = profit / cost Weighted average = Σ(weight × value) / Σweight
- Numerator: the part being measured
- Denominator: the reference base
- Percentage: ratio × 100
- Weights: nonnegative quantities such as debt balances
Worked example
$30,000 gross rent plus no other income at 5% vacancy yields $28,500 effective income. After $7,200 expenses, NOI is $21,300.
Reproduce the default scenario
This is a separate example, calculated using the exact engine on the tool page and the defaults in the input reference above. Health examples use metric units. Displayed rounding may differ from intermediate precision.
- Property capitalization rate
- 4.73%
- Potential gross income
- 30,000 USD
- Vacancy allowance
- 1,500 USD
- Effective gross income
- 28,500 USD
- Net operating income (NOI)
- 21,300 USD
- Price at target cap rate
- 304,285.71 USD
Reading results without overstating them
- Cap rate excludes mortgage payments so properties can be compared independent of financing.
- A target cap rate is a required-return assumption, not a market valuation guarantee.
Assumptions and exclusions
- Operating expenses should exclude debt service, depreciation, capital expenditures, and income tax. This model does not forecast rent growth, resale value, financing, or local market risk.
Sources and content notes
Toolify describes the implemented algorithm and its assumptions. Sources below support the topic or applicable rules; they do not endorse this calculator. Examples are illustrative, and published rules take precedence over simplified estimates.
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