How to Calculate Recapture Rate

by Michael Keenan
The recapture rate measures equals the portion of the investment you need to recoup each year to break even.

The recapture rate measures equals the portion of the investment you need to recoup each year to break even.

The recapture rate, also called the return of investment, measures the percentage of a property's value that you need to recover every year to break even over its economic life. The recapture rate is just a baseline for helping you set your prices, because it does not account for any additional expenses or any return on your investment. To figure the recapture rate, you need to estimate the economic life of the investment. Though depreciation schedules for tax purposes might give you a starting place, you can adjust these figures if you think the asset will be around for a longer or shorter period of time.

Divide 1 by the useful life of the investment to calculate the recapture rate as a decimal. For example, if you buy a house that you think you'll be able to rent out for 20 years, divide 1 by 20 to get 0.05.

Multiply the recapture rate as a decimal by the investment to convert the rate capture rate to a dollar figure. In this example, if the house costs $200,000, multiply $200,000 by 0.05 to find the annual recapture rate is $10,000.

Multiply the recapture rate as a decimal by 100 to figure the recapture rate as a percentage. In this example, multiply 0.05 by 100 to find the recapture rate is 5 percent per year.

Tip

  • To calculate the capitalization rate, add your required return to the recapture rate. For example, say you want to bring in 8 percent of the property's value each year on top of your 5 percent recapture rate. Add 8 percent to 5 percent to find your capitalization rate is 13 percent.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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