# Cap Rate Calculator

Capitalization Rate:
Gross rental income
\$70,000
Vacancy allowance
\$4,900
Gross operating income
\$65,100
Operating expenses
\$26,040
Net operating income
\$39,060
Property value
\$100,000

## How To Use Our Cap Rate Calculator

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.

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

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.

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.

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## Where We Lend

Hard Money Loans Across The US