Net Operating Income on a $400,000 Rental Property

A $400,000 rental at $3,400 a month in rent produces about $24,983 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 $384,357.

The income statement on a $400,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($4,800 a year), insurance at 0.5% ($2,000), 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: $3,400 a month (0.85% of price), $40,800 a year
Effective gross income after vacancy: $38,760
Taxes and insurance: $6,800
Maintenance, reserves and management: $6,977
Total operating expenses: $13,777 (35.5% of collected income)
Net operating income: $24,983, or $2,082 a month

See what $25,000 of NOI is worth at every cap rate.

NOI at different rents on a $400,000 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
$2,000	0.5%	$11,896	48%	2.97%
$2,400	0.6%	$15,635	43%	3.91%
$2,800	0.7%	$19,374	39%	4.84%
$3,200	0.8%	$23,114	37%	5.78%
$3,600	0.9%	$26,853	35%	6.71%
$4,000	1.0%	$30,592	33%	7.65%
$4,400	1.1%	$34,331	32%	8.58%
$4,800	1.2%	$38,070	30%	9.52%

How property taxes change the NOI

At $3,400 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%	$2,000	$27,783	28%	6.95%
0.8%	$3,200	$26,583	31%	6.65%
1.0%	$4,000	$25,783	33%	6.45%
1.2%	$4,800	$24,983	36%	6.25%
1.5%	$6,000	$23,783	39%	5.95%
2.0%	$8,000	$21,783	44%	5.45%
2.5%	$10,000	$19,783	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $335 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$26,656	6.66%
3%	$1,224	$25,652	6.41%
5%	$2,040	$24,983	6.25%
8%	$3,264	$23,980	5.99%
10%	$4,080	$23,310	5.83%
15%	$6,120	$21,638	5.41%

What this NOI is worth at market cap rates

$24,983 of NOI valued at each cap rate, and the gap to the $400,000 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 $400,000
4%	$624,580	$224,580
5%	$499,664	$99,664
6%	$416,387	$16,387
7%	$356,903	-$43,097
8%	$312,290	-$87,710
9%	$277,591	-$122,409
10%	$249,832	-$150,168

Run the $400,000 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%$2,040 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)

$24,983

$2,082 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: $40,800
Vacancy and credit loss: -$2,040
Effective gross income: $38,760
Property taxes: -$4,800
Insurance: -$2,000
Maintenance: -$1,938
Capital reserves: -$1,938
Management: -$3,101
Total operating expenses: -$13,777
Net operating income: $24,983
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: $384,357
Cap rate at this price$24,983 / $400,000: 6.25%
Priced above that value by: $15,643
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: $335
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$400,000 rental NOI questions

What is the NOI on a $400,000 rental property?

At $3,400 rent with 5% vacancy, taxes of $4,800, insurance of $2,000 and 18% of collected income for maintenance, reserves and management, net operating income is about $24,983 a year, or $2,082 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

What is a good NOI for a $400,000 property?

One that produces the cap rate comparable rentals sell at. In a 5% market a $400,000 property needs about $20,000 of NOI to be fairly priced; in an 8% market it needs $32,000. At $3,400 rent this one produces $24,983, a 6.2% cap rate.

How much do property taxes change the NOI on a $400,000 rental?

Dollar for dollar. Taxes at 0.5% of price cost $2,000 a year and at 2.5% they cost $10,000, a $8,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $123,077 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.