Net Operating Income on a $250,000 Rental Property

A $250,000 rental at $2,125 a month in rent produces about $15,615 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 $240,223.

The income statement on a $250,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($3,000 a year), insurance at 0.5% ($1,250), 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: $2,125 a month (0.85% of price), $25,500 a year
Effective gross income after vacancy: $24,225
Taxes and insurance: $4,250
Maintenance, reserves and management: $4,361
Total operating expenses: $8,611 (35.5% of collected income)
Net operating income: $15,615, or $1,301 a month

See what $15,000 of NOI is worth at every cap rate.

NOI at different rents on a $250,000 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
$1,250	0.5%	$7,435	48%	2.97%
$1,500	0.6%	$9,772	43%	3.91%
$1,750	0.7%	$12,109	39%	4.84%
$2,000	0.8%	$14,446	37%	5.78%
$2,250	0.9%	$16,783	35%	6.71%
$2,500	1.0%	$19,120	33%	7.65%
$2,750	1.1%	$21,457	32%	8.58%
$3,000	1.2%	$23,794	30%	9.52%

How property taxes change the NOI

At $2,125 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%	$1,250	$17,365	28%	6.95%
0.8%	$2,000	$16,615	31%	6.65%
1.0%	$2,500	$16,115	33%	6.45%
1.2%	$3,000	$15,615	36%	6.25%
1.5%	$3,750	$14,865	39%	5.95%
2.0%	$5,000	$13,615	44%	5.45%
2.5%	$6,250	$12,365	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $209 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$16,660	6.66%
3%	$765	$16,033	6.41%
5%	$1,275	$15,615	6.25%
8%	$2,040	$14,987	5.99%
10%	$2,550	$14,569	5.83%
15%	$3,825	$13,524	5.41%

What this NOI is worth at market cap rates

$15,615 of NOI valued at each cap rate, and the gap to the $250,000 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 $250,000
4%	$390,363	$140,363
5%	$312,290	$62,290
6%	$260,242	$10,242
7%	$223,064	-$26,936
8%	$195,181	-$54,819
9%	$173,494	-$76,506
10%	$156,145	-$93,855

Run the $250,000 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%$1,275 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)

$15,615

$1,301 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: $25,500
Vacancy and credit loss: -$1,275
Effective gross income: $24,225
Property taxes: -$3,000
Insurance: -$1,250
Maintenance: -$1,211
Capital reserves: -$1,211
Management: -$1,938
Total operating expenses: -$8,611
Net operating income: $15,615
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: $240,223
Cap rate at this price$15,615 / $250,000: 6.25%
Priced above that value by: $9,777
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: $209
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$250,000 rental NOI questions

What is the NOI on a $250,000 rental property?

At $2,125 rent with 5% vacancy, taxes of $3,000, insurance of $1,250 and 18% of collected income for maintenance, reserves and management, net operating income is about $15,615 a year, or $1,301 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

What is a good NOI for a $250,000 property?

One that produces the cap rate comparable rentals sell at. In a 5% market a $250,000 property needs about $12,500 of NOI to be fairly priced; in an 8% market it needs $20,000. At $2,125 rent this one produces $15,615, a 6.2% cap rate.

How much do property taxes change the NOI on a $250,000 rental?

Dollar for dollar. Taxes at 0.5% of price cost $1,250 a year and at 2.5% they cost $6,250, a $5,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $76,923 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.