For the Total Cap Rate Scenario Chart we take the NOI (Net Operating Income) divided by the purchase price for each property, and add them all together. Net Operating Income equals all revenue from the property minus the operating expenses. It is a pre-tax figure that does not include principal and interest payments on loans, capital expenditures, depreciation, or amortization.
To calculate this value you will first need to determine the operating expenses. Here is an example based on the inputs we use in the Real Estate Financial Planner™.
Property Taxes + Property Insurance + HOA + Utilities + Other Expense 1 + Other Expense 2 + Maintenance + Property Management = Operating Expenses
$187.50 + $125 + $0 + $0 + $0 + $0 + $169.84 = $482.34/month
Next, we need the net operating income or NOI which we get by subtracting the operating expenses from the operating income (rent you receive).
Gross Operating Income - Operating Expenses = Net Operating Income
$1698.37 - $482.34 = $1216.04/month
Then, to get the Capitalization Rate we take the Net Operating Income divided by the Purchase Price of the house.
Net Operating Income/Purchase Price = Capitalization Rate
$1216.04/$300,000.00 = 4.86%
Additional Information About Scenario Charts
If you're interested in learning more about the Scenario Charts in the Real Estate Financial Planner™ check out these resources below.
- True Cash Flow™
- Cash Flow
- Months of Reserves
- Total Cash Flow with Depreciation
- Total Cash Flow
- Total Cap Rate if Sold
More posts: Scenario Charts