Cap Rate = Net Operating Income / Purchase Price
Note: this calculator derives the Net Operating Income for you by taking the Gross Annual Income and subtracting for Vacancies Allowance & Operating Expenses (NOI = gross annual income – operating expenses).
Annual Operating expenses % (total annual expenses ÷ gross annual income): Annual expenses such as property taxes, insurance and maintenance.
The below defaults use a value of 28%. Example: 6000 (taxes) + 2500 (insurance) + 3260 (maintenance) = 11,760. 11,760 ÷ 42,000 = 28%. If you pay someone to manage the property, add that cost as an expense.
Some formulas also factor in reserves for replacements (money set aside to replace short-lived items like appliances). Keep in mind, when comparing properties against one another, remember to include the same variables for each property.