Property Valuation Calculator
Enter the monthly rent, capitalisation rate (cap rate) and expense ratio to estimate a rental property's value by the income approach. Good for judging a fair buy price.
Input Data
Results
At a glance:The income approach values a property from its rent. Gross annual rent = monthly rent × 12; net annual rent = gross annual rent × (1 − expense ratio%); estimated value = net annual rent ÷ cap rate. The cap rate is the market yield; a lower cap rate implies a higher price.
Formula
Gross annual rent = monthly rent × 12.
Net annual rent = gross annual rent × (1 − expense ratio%).
Estimated value = net annual rent ÷ cap rate.
$$\text{NOI} = 12R\times(1-e)$$$$V = \dfrac{\text{NOI}}{\text{cap rate}}$$How to Use
- Enter the monthly rent.
- Enter the cap rate and the expense ratio.
- Read the estimated value, net and gross annual rent.
FAQ
What is the income approach and how does it value a property?
The income approach values a property from its ability to generate rent. Core formula: estimated value = net annual rent ÷ cap rate. Step by step: gross annual rent = monthly rent × 12; net annual rent = gross annual rent × (1 − expense ratio, i.e. vacancy + management, rates, repairs); then value = net annual rent ÷ cap rate. It answers 'how much is the income stream worth', and is the main method for investment property, shops and offices; residential owner-occupiers use it less.
Why does a lower cap rate mean a higher value?
Because value = net annual rent ÷ cap rate — cap rate is the denominator, so a lower cap rate gives a higher value (and a higher yield means a lower price). Intuitively, a low cap rate means the market is willing to pay more for each dollar of rent (more confidence, more competition, lower risk), so the price climbs. That is why prime Hong Kong districts with low cap rates (say 2%-2.5%) command sky-high prices, while higher-yield peripheral or industrial assets are cheaper. Watch the direction: cap rate down → price up; cap rate up → price down.
What is a reasonable cap rate in Hong Kong, and how do I set it?
Cap rates vary widely by type and district. Residential is roughly 2%-3.5% (very low, reflecting the high prices); shops and industrial are usually higher (often 3%-6%+ depending on location and tenant); offices sit in between and move with the cycle. To set the cap rate here, use the market yield of comparable, recently traded properties (newspapers, agents, the Rating and Valuation Department's statistics, Cushman/Wire/CBRE reports), not a number you pick at random. Note cap rate and risk move together — higher risk (vacancy, old building, single tenant) deserves a higher cap rate (lower price). Using the wrong cap rate can wildly over/under-state value, so anchor it to real comparables.
What does the expense ratio include, and how much is typical?
The expense ratio here = vacancy loss + operating expenses, as a percent of gross rent. Operating expenses typically include management fees, rates and government rent, repairs and maintenance, insurance, and cleaning/security; it excludes the mortgage (interest), depreciation and large renovations (those are not part of net operating income). For residential, the common range is about 15%-25% (giving a net operating income of 75%-85% of gross); shops/offices depend on management and tenancy terms. The higher the ratio, the lower the net rent and the lower the estimated value. Use a realistic figure for your property; an overly low ratio overstates value. This tool's net rent = gross × (1 − ratio), a simplification that ignores the timing of vacancies and the building's condition.
Besides the income approach, what other valuation methods exist, and why rely on it?
Property valuation has three main methods, and using them together is more reliable than one alone. First, the income approach (this tool) — value = net rent ÷ cap rate, for income-producing property; it reflects the rent's worth but needs a correct cap rate and steady rent. Second, the comparison/sales approach — value from recent transactions of similar nearby units (the most common for residential, intuitive, but needs enough comparable deals). Third, the cost approach — value = land cost + rebuilding cost − depreciation, more for special-use or new buildings where comparables are scarce. In practice: for investment property, lead with the income approach (and check the cap rate against the market); for owner-occupied or resale homes, lean on the comparison approach; for unique or new builds, use the cost approach. Also cross-check the income-approach value against the price per sq ft of comparables. No single method is perfect; triangulating gives a fairer price. This calculator is a simplified income-approach estimate for quick reference — actual deals should combine methods and consult a professional valuer.
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References
This calculator's content is reviewed by our Licensed Property & Valuation Advisory team. Results are for reference only; please refer to the relevant authorities for the official figures.