Net Operating Income on a $1,500,000 Rental Property

A $1,500,000 rental at $12,750 a month in rent produces about $93,687 of net operating income a year under standard expenses, an expense ratio of 36% and a 6.2% cap rate. At a 6.5% market cap rate that NOI is worth $1,441,338.

The income statement on a $1,500,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($18,000 a year), insurance at 0.5% ($7,500), and 5% maintenance, 5% capital reserves and 8% management on collected income. Taxes vary the most by state, so replace them with the real bill.

Gross scheduled income: $12,750 a month (0.85% of price), $153,000 a year
Effective gross income after vacancy: $145,350
Taxes and insurance: $25,500
Maintenance, reserves and management: $26,163
Total operating expenses: $51,663 (35.5% of collected income)
Net operating income: $93,687, or $7,807 a month

See what $100,000 of NOI is worth at every cap rate.

NOI at different rents on a $1,500,000 property

Rent as a percent of price is the fastest screen. Each $100 a month of rent adds $935 of NOI after vacancy and percentage expenses, and the expense ratio falls as rent rises because taxes and insurance are fixed.

Monthly rent	Rent / price	NOI	Expense ratio	Cap rate
$7,500	0.5%	$44,610	48%	2.97%
$9,000	0.6%	$58,632	43%	3.91%
$10,500	0.7%	$72,654	39%	4.84%
$12,000	0.8%	$86,676	37%	5.78%
$13,500	0.9%	$100,698	35%	6.71%
$15,000	1.0%	$114,720	33%	7.65%
$16,500	1.1%	$128,742	32%	8.58%
$18,000	1.2%	$142,764	30%	9.52%

How property taxes change the NOI

At $12,750 rent. Effective tax rates run from under 0.5% in Hawaii to over 2% in New Jersey, Illinois and parts of Texas, and NOI moves dollar for dollar.

Tax rate	Annual taxes	NOI	Expense ratio	Cap rate
0.5%	$7,500	$104,187	28%	6.95%
0.8%	$12,000	$99,687	31%	6.65%
1.0%	$15,000	$96,687	33%	6.45%
1.2%	$18,000	$93,687	36%	6.25%
1.5%	$22,500	$89,187	39%	5.95%
2.0%	$30,000	$81,687	44%	5.45%
2.5%	$37,500	$74,187	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $1,255 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$99,960	6.66%
3%	$4,590	$96,196	6.41%
5%	$7,650	$93,687	6.25%
8%	$12,240	$89,923	5.99%
10%	$15,300	$87,414	5.83%
15%	$22,950	$81,141	5.41%

What this NOI is worth at market cap rates

$93,687 of NOI valued at each cap rate, and the gap to the $1,500,000 price. A buyer in a 5% market and a buyer in an 8% market are not looking at the same property.

Market cap rate	Implied value	vs $1,500,000
4%	$2,342,175	$842,175
5%	$1,873,740	$373,740
6%	$1,561,450	$61,450
7%	$1,338,386	-$161,614
8%	$1,171,088	-$328,913
9%	$1,040,967	-$459,033
10%	$936,870	-$563,130

Run the $1,500,000 property yourself

Preloaded with the numbers above. Change the rent, taxes, insurance or expenses to match the property.

Income

Monthly rent (all units)$Scheduled rent at full occupancyUnitsFor per-unit figures. 1 for a house or condo.Other monthly income$Parking, laundry, pet rent, storage, utility billbackVacancy and credit loss%$7,650 a year. 5 to 8% is typical.

Operating expenses

Annual property taxes$Use the bill after reassessment, not the seller'sAnnual insurance$Landlord policy, plus flood or wind where neededHOA dues (monthly)$Owner-paid utilities (monthly)$Water, sewer, trash, gas, common-area electricOther monthly expenses$Lawn, snow, pest, licenses, legal, accounting

Price and market (optional)

Purchase price or value$Leave at 0 if you only need NOI. Turns on the cap rate.Market cap rate%What comparable properties sell at. Values the NOI.

Net operating income (annual)

$93,687

$7,807 a month

Typical expenses · 36% ratio

Typical. 30 to 45% of collected income covers expenses, the range most single-family and small multifamily rentals land in with every cost counted.

Income statement

Gross scheduled income: $153,000
Vacancy and credit loss: -$7,650
Effective gross income: $145,350
Property taxes: -$18,000
Insurance: -$7,500
Maintenance: -$7,268
Capital reserves: -$7,268
Management: -$11,628
Total operating expenses: -$51,663
Net operating income: $93,687
Expense ratiooperating expenses / effective gross income: 35.5%
NOI marginNOI / effective gross income: 64.5%

What this NOI is worth

Value at a 6.50% cap rate: $1,441,338
Cap rate at this price$93,687 / $1,500,000: 6.25%
Priced above that value by: $58,662
Gross rent multiplierprice / gross scheduled income: 9.8

What moves it

Each $100/mo of rent addsof annual NOI after vacancy and percentage expenses: $935
Each point of vacancy costsof annual NOI: $1,255
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$1,500,000 rental NOI questions

What is the NOI on a $1,500,000 rental property?

At $12,750 rent with 5% vacancy, taxes of $18,000, insurance of $7,500 and 18% of collected income for maintenance, reserves and management, net operating income is about $93,687 a year, or $7,807 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

What is a good NOI for a $1,500,000 property?

One that produces the cap rate comparable rentals sell at. In a 5% market a $1,500,000 property needs about $75,000 of NOI to be fairly priced; in an 8% market it needs $120,000. At $12,750 rent this one produces $93,687, a 6.2% cap rate.

How much do property taxes change the NOI on a $1,500,000 rental?

Dollar for dollar. Taxes at 0.5% of price cost $7,500 a year and at 2.5% they cost $37,500, a $30,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $461,538 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.