Capitalization Rate (Cap Rate) Calculator
Estimate a property's cap rate and implied value from net operating income and market value.
Input Data
Results
At a glance:Cap rate = net operating income (NOI) / property value x 100%; implied value = NOI / cap rate. It is a quick way to compare the unleveraged rental yield across properties. Example: annual rent HK$240,000 minus fees HK$40,000 = NOI HK$200,000; on a HK$8,000,000 property, cap rate = 200,000 / 8,000,000 = 2.50%. WARNING: It uses a single year's NOI and ignores financing, taxes, vacancies and rent growth; it is a snapshot, not a full return measure.
Formula
Capitalisation rate = Net operating income / Property value (or price).
$$\text{Cap Rate} = \dfrac{\text{NOI}}{\text{Property Value}} \times 100\%$$$$\text{NOI} = \text{Gross Rental Income} - \text{Operating Expenses}$$$$\text{Property Value} = \dfrac{\text{NOI}}{\text{Cap Rate}}$$How to Use
- Enter the property's annual net operating income (rent minus operating costs, excluding mortgage interest).
- Enter the property value, or enter a target cap rate to derive the implied value.
- View the cap rate and the implied value for comparison.
Case Studies
Case 1: Cap rate of a small Hong Kong rental flat
Annual rent HK$240,000, management and rates HK$40,000, so NOI = HK$200,000. Property value HK$8,000,000.
Cap rate = 200,000 / 8,000,000 x 100% = 2.50%. This is a typical low Hong Kong residential yield — useful for comparing with other districts or with bond/dividend yields, but not a measure of leveraged return.
Case 2: Implied value from a target cap rate
An investor targets a 4% cap rate and a property's NOI is HK$400,000.
Implied value = 400,000 / 4% = HK$10,000,000. If the market asks HK$12,000,000, the market cap rate is only 3.33%, so the price is 'rich' relative to the investor's target — a quick way to screen deals.
FAQ
What is a cap rate?
The cap rate is the annual net operating income divided by the property value, expressed as a percentage. It shows the unleveraged rental return and lets you compare different properties on a like-for-like basis.
Why are Hong Kong cap rates so low?
Hong Kong residential cap rates are often around 2-3%, reflecting high property prices relative to rents. A 'cheap' price may still yield a thin rental return, so cap rate alone should not drive a purchase decision.
Does cap rate include my mortgage?
No. Cap rate uses NOI before financing, so it ignores your mortgage and leverage. To see the return on your actual cash invested, use a cash-on-cash or rental yield calculator that accounts for borrowing.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.