Calculating your capitalization rate is straightforward once you know the Cap Rate formula and what each input means. This guide explains the method in plain language, walks through a manual calculation, and gives worked examples you can follow — then you can do it instantly with the Cap Rate Calculator.
What is Cap Rate?
The Cap Rate calculation tells you your capitalization rate from a few simple inputs. The figure you are solving for here is the capitalization rate, expressed in percent.
The Cap Rate formula
The core formula is:
Capitalization rate = Net operating income (annual) ÷ Property value × 100Here is what each input means:
- Net operating income (annual) — a money amount. Example: ₹5,00,000.
- Property value — a money amount. Example: ₹1,00,00,000.
How to calculate it step by step
- Write down the net operating income (annual) (for example, ₹5,00,000).
- Write down the property value (for example, ₹1,00,00,000).
- Apply the formula above to get your capitalization rate.
- Double-check the result with the Cap Rate Calculator.
Worked examples
Example 1
| Input / Output | Value |
|---|---|
| Net operating income (annual) | ₹5,00,000 |
| Property value | ₹1,00,00,000 |
| Capitalization rate | 5.00% |
With net operating income (annual) of ₹5,00,000 and property value of ₹1,00,00,000, the capitalization rate works out to 5.00%.
Example 2
With net operating income (annual) of ₹10,00,000 and property value of ₹1,00,00,000, the capitalization rate works out to 10.00%.
| Result | Value |
|---|---|
| Capitalization rate | 10.00% |
Example 3
With net operating income (annual) of ₹2,50,000 and property value of ₹1,00,00,000, the capitalization rate works out to 2.50%.
| Result | Value |
|---|---|
| Capitalization rate | 2.50% |
Tips for an accurate result
- Keep your units consistent — mixing, say, months with years or grams with kilograms is the most common source of error.
- Round only at the very end. Rounding inputs early can shift the final answer noticeably.
- Re-run the numbers whenever an input changes, rather than estimating from an old result.
- Annual rates must be converted to the period you are calculating for (for example, divide an annual rate by 12 for a monthly figure).
Prefer not to do the maths by hand? — the Cap Rate Calculator does it instantly, for free, with the formula and a worked example built in.
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