Net Operating Income on a $500,000 Rental Property

A $500,000 rental at $4,250 a month in rent produces about $31,229 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 $480,446.

The income statement on a $500,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($6,000 a year), insurance at 0.5% ($2,500), 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: $4,250 a month (0.85% of price), $51,000 a year
Effective gross income after vacancy: $48,450
Taxes and insurance: $8,500
Maintenance, reserves and management: $8,721
Total operating expenses: $17,221 (35.5% of collected income)
Net operating income: $31,229, or $2,602 a month

See what $30,000 of NOI is worth at every cap rate.

NOI at different rents on a $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
$2,500	0.5%	$14,870	48%	2.97%
$3,000	0.6%	$19,544	43%	3.91%
$3,500	0.7%	$24,218	39%	4.84%
$4,000	0.8%	$28,892	37%	5.78%
$4,500	0.9%	$33,566	35%	6.71%
$5,000	1.0%	$38,240	33%	7.65%
$5,500	1.1%	$42,914	32%	8.58%
$6,000	1.2%	$47,588	30%	9.52%

How property taxes change the NOI

At $4,250 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%	$2,500	$34,729	28%	6.95%
0.8%	$4,000	$33,229	31%	6.65%
1.0%	$5,000	$32,229	33%	6.45%
1.2%	$6,000	$31,229	36%	6.25%
1.5%	$7,500	$29,729	39%	5.95%
2.0%	$10,000	$27,229	44%	5.45%
2.5%	$12,500	$24,729	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $418 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$33,320	6.66%
3%	$1,530	$32,065	6.41%
5%	$2,550	$31,229	6.25%
8%	$4,080	$29,974	5.99%
10%	$5,100	$29,138	5.83%
15%	$7,650	$27,047	5.41%

What this NOI is worth at market cap rates

$31,229 of NOI valued at each cap rate, and the gap to the $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 $500,000
4%	$780,725	$280,725
5%	$624,580	$124,580
6%	$520,483	$20,483
7%	$446,129	-$53,871
8%	$390,363	-$109,638
9%	$346,989	-$153,011
10%	$312,290	-$187,710

Run the $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%$2,550 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)

$31,229

$2,602 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: $51,000
Vacancy and credit loss: -$2,550
Effective gross income: $48,450
Property taxes: -$6,000
Insurance: -$2,500
Maintenance: -$2,423
Capital reserves: -$2,423
Management: -$3,876
Total operating expenses: -$17,221
Net operating income: $31,229
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: $480,446
Cap rate at this price$31,229 / $500,000: 6.25%
Priced above that value by: $19,554
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: $418
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$500,000 rental NOI questions

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

At $4,250 rent with 5% vacancy, taxes of $6,000, insurance of $2,500 and 18% of collected income for maintenance, reserves and management, net operating income is about $31,229 a year, or $2,602 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

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

One that produces the cap rate comparable rentals sell at. In a 5% market a $500,000 property needs about $25,000 of NOI to be fairly priced; in an 8% market it needs $40,000. At $4,250 rent this one produces $31,229, a 6.2% cap rate.

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

Dollar for dollar. Taxes at 0.5% of price cost $2,500 a year and at 2.5% they cost $12,500, a $10,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $153,846 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.