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

A $1,000,000 rental at $8,500 a month in rent produces about $62,458 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 $960,892.

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

Assumptions: 5% vacancy, taxes at 1.2% of price ($12,000 a year), insurance at 0.5% ($5,000), 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: $8,500 a month (0.85% of price), $102,000 a year
Effective gross income after vacancy: $96,900
Taxes and insurance: $17,000
Maintenance, reserves and management: $17,442
Total operating expenses: $34,442 (35.5% of collected income)
Net operating income: $62,458, or $5,205 a month

See what $60,000 of NOI is worth at every cap rate.

NOI at different rents on a $1,000,000 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
$5,000	0.5%	$29,740	48%	2.97%
$6,000	0.6%	$39,088	43%	3.91%
$7,000	0.7%	$48,436	39%	4.84%
$8,000	0.8%	$57,784	37%	5.78%
$9,000	0.9%	$67,132	35%	6.71%
$10,000	1.0%	$76,480	33%	7.65%
$11,000	1.1%	$85,828	32%	8.58%
$12,000	1.2%	$95,176	30%	9.52%

How property taxes change the NOI

At $8,500 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%	$5,000	$69,458	28%	6.95%
0.8%	$8,000	$66,458	31%	6.65%
1.0%	$10,000	$64,458	33%	6.45%
1.2%	$12,000	$62,458	36%	6.25%
1.5%	$15,000	$59,458	39%	5.95%
2.0%	$20,000	$54,458	44%	5.45%
2.5%	$25,000	$49,458	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $836 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$66,640	6.66%
3%	$3,060	$64,131	6.41%
5%	$5,100	$62,458	6.25%
8%	$8,160	$59,949	5.99%
10%	$10,200	$58,276	5.83%
15%	$15,300	$54,094	5.41%

What this NOI is worth at market cap rates

$62,458 of NOI valued at each cap rate, and the gap to the $1,000,000 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 $1,000,000
4%	$1,561,450	$561,450
5%	$1,249,160	$249,160
6%	$1,040,967	$40,967
7%	$892,257	-$107,743
8%	$780,725	-$219,275
9%	$693,978	-$306,022
10%	$624,580	-$375,420

Run the $1,000,000 property yourself

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

Itemized income and expense lines

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%$5,100 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)

$62,458

$5,205 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: $102,000
Vacancy and credit loss: -$5,100
Effective gross income: $96,900
Property taxes: -$12,000
Insurance: -$5,000
Maintenance: -$4,845
Capital reserves: -$4,845
Management: -$7,752
Total operating expenses: -$34,442
Net operating income: $62,458
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: $960,892
Cap rate at this price$62,458 / $1,000,000: 6.25%
Priced above that value by: $39,108
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: $836
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$1,000,000 rental NOI questions

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

At $8,500 rent with 5% vacancy, taxes of $12,000, insurance of $5,000 and 18% of collected income for maintenance, reserves and management, net operating income is about $62,458 a year, or $5,205 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

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

One that produces the cap rate comparable rentals sell at. In a 5% market a $1,000,000 property needs about $50,000 of NOI to be fairly priced; in an 8% market it needs $80,000. At $8,500 rent this one produces $62,458, a 6.2% cap rate.

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

Dollar for dollar. Taxes at 0.5% of price cost $5,000 a year and at 2.5% they cost $25,000, a $20,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $307,692 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.