Net Operating Income on a $2,000,000 Rental Property

A $2,000,000 rental at $17,000 a month in rent produces about $124,916 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 $1,921,785.

The income statement on a $2,000,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($24,000 a year), insurance at 0.5% ($10,000), 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: $17,000 a month (0.85% of price), $204,000 a year
Effective gross income after vacancy: $193,800
Taxes and insurance: $34,000
Maintenance, reserves and management: $34,884
Total operating expenses: $68,884 (35.5% of collected income)
Net operating income: $124,916, or $10,410 a month

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

NOI at different rents on a $2,000,000 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
$10,000	0.5%	$59,480	48%	2.97%
$12,000	0.6%	$78,176	43%	3.91%
$14,000	0.7%	$96,872	39%	4.84%
$16,000	0.8%	$115,568	37%	5.78%
$18,000	0.9%	$134,264	35%	6.71%
$20,000	1.0%	$152,960	33%	7.65%
$22,000	1.1%	$171,656	32%	8.58%
$24,000	1.2%	$190,352	30%	9.52%

How property taxes change the NOI

At $17,000 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%	$10,000	$138,916	28%	6.95%
0.8%	$16,000	$132,916	31%	6.65%
1.0%	$20,000	$128,916	33%	6.45%
1.2%	$24,000	$124,916	36%	6.25%
1.5%	$30,000	$118,916	39%	5.95%
2.0%	$40,000	$108,916	44%	5.45%
2.5%	$50,000	$98,916	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $1,673 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$133,280	6.66%
3%	$6,120	$128,262	6.41%
5%	$10,200	$124,916	6.25%
8%	$16,320	$119,898	5.99%
10%	$20,400	$116,552	5.83%
15%	$30,600	$108,188	5.41%

What this NOI is worth at market cap rates

$124,916 of NOI valued at each cap rate, and the gap to the $2,000,000 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 $2,000,000
4%	$3,122,900	$1,122,900
5%	$2,498,320	$498,320
6%	$2,081,933	$81,933
7%	$1,784,514	-$215,486
8%	$1,561,450	-$438,550
9%	$1,387,956	-$612,044
10%	$1,249,160	-$750,840

Run the $2,000,000 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%$10,200 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)

$124,916

$10,410 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: $204,000
Vacancy and credit loss: -$10,200
Effective gross income: $193,800
Property taxes: -$24,000
Insurance: -$10,000
Maintenance: -$9,690
Capital reserves: -$9,690
Management: -$15,504
Total operating expenses: -$68,884
Net operating income: $124,916
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: $1,921,785
Cap rate at this price$124,916 / $2,000,000: 6.25%
Priced above that value by: $78,215
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: $1,673
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$2,000,000 rental NOI questions

What is the NOI on a $2,000,000 rental property?

At $17,000 rent with 5% vacancy, taxes of $24,000, insurance of $10,000 and 18% of collected income for maintenance, reserves and management, net operating income is about $124,916 a year, or $10,410 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

What is a good NOI for a $2,000,000 property?

One that produces the cap rate comparable rentals sell at. In a 5% market a $2,000,000 property needs about $100,000 of NOI to be fairly priced; in an 8% market it needs $160,000. At $17,000 rent this one produces $124,916, a 6.2% cap rate.

How much do property taxes change the NOI on a $2,000,000 rental?

Dollar for dollar. Taxes at 0.5% of price cost $10,000 a year and at 2.5% they cost $50,000, a $40,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $615,385 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.