# Cap Rate Calculator

## How To Use Our Cap Rate Calculator

There are 4 primary variables being used in our calculator. We will now explain each variable in greater detail to help avoid any confusion. If you have additional questions about capitalization rate, our in-depth cap rate guide may prove helpful.

### Property Value

This is the current market value of the property that you are analyzing. If you aren’t 100% sure of the property’s current value, our free online ARV calculator can help you assess the value, based on the selling price of comparable properties in the area.

### Gross Rental Income

This is the annual rental income that you are expecting to receive from the rental property.

### Vacancy Rate

The Vacancy rate represents the percentage of the year that you are expecting to be without a tenant. It is a cost that should be factored into your rental property calculations. Generally, it is advisable to use a vacancy rate between 6-8%. For this reason, we have used 7% as the default vacancy rate, but you can obviously change it to match your expectations.

### Operation Expenses

The operating expenses are the total expenses that you are expecting to incur throughout the year, excluding the cost of the mortgage. For this calculator, it is being expressed as a percentage of the gross rental income.

While the exact operating expenses will vary from property to property, a quick rule of thumb is to assume that the property will incur expenses that are between 40%-50% of the gross rental income.

There is even a name for this rule of thumb. Property investors call it ‘the 50% rule’. It means that if your gross rental income is $50,000, your property operating expenses are likely to be about $25,000. Like any real estate rule it isn’t perfect, but it is a good way to quickly estimate the potential operating expenses of a rental property.

## Additional Real Estate Calculators

You might also be interested in the following helpful real estate calculators:

**Hard Money Loan Calculator:**Ideal for working out the loan costs and profitability of a fix and flip**ARV Calculator**: Figure out the after repair value of your fix and flip property.**Rental Property Calculator**: Workout the expected ROI of your investment property.