Net Operating Income on a $600,000 Rental Property

A $600,000 rental at $5,100 a month in rent produces about $37,475 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 $576,535.

The income statement on a $600,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($7,200 a year), insurance at 0.5% ($3,000), 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: $5,100 a month (0.85% of price), $61,200 a year
Effective gross income after vacancy: $58,140
Taxes and insurance: $10,200
Maintenance, reserves and management: $10,465
Total operating expenses: $20,665 (35.5% of collected income)
Net operating income: $37,475, or $3,123 a month

See what $40,000 of NOI is worth at every cap rate.

NOI at different rents on a $600,000 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
$3,000	0.5%	$17,844	48%	2.97%
$3,600	0.6%	$23,453	43%	3.91%
$4,200	0.7%	$29,062	39%	4.84%
$4,800	0.8%	$34,670	37%	5.78%
$5,400	0.9%	$40,279	35%	6.71%
$6,000	1.0%	$45,888	33%	7.65%
$6,600	1.1%	$51,497	32%	8.58%
$7,200	1.2%	$57,106	30%	9.52%

How property taxes change the NOI

At $5,100 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%	$3,000	$41,675	28%	6.95%
0.8%	$4,800	$39,875	31%	6.65%
1.0%	$6,000	$38,675	33%	6.45%
1.2%	$7,200	$37,475	36%	6.25%
1.5%	$9,000	$35,675	39%	5.95%
2.0%	$12,000	$32,675	44%	5.45%
2.5%	$15,000	$29,675	49%	4.95%

How vacancy changes the NOI

Each point of vacancy costs $502 of NOI at this rent. A month empty every two years is about 4%.

Vacancy	Lost income	NOI	Cap rate
0%	$0	$39,984	6.66%
3%	$1,836	$38,478	6.41%
5%	$3,060	$37,475	6.25%
8%	$4,896	$35,969	5.99%
10%	$6,120	$34,966	5.83%
15%	$9,180	$32,456	5.41%

What this NOI is worth at market cap rates

$37,475 of NOI valued at each cap rate, and the gap to the $600,000 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 $600,000
4%	$936,870	$336,870
5%	$749,496	$149,496
6%	$624,580	$24,580
7%	$535,354	-$64,646
8%	$468,435	-$131,565
9%	$416,387	-$183,613
10%	$374,748	-$225,252

Run the $600,000 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%$3,060 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)

$37,475

$3,123 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: $61,200
Vacancy and credit loss: -$3,060
Effective gross income: $58,140
Property taxes: -$7,200
Insurance: -$3,000
Maintenance: -$2,907
Capital reserves: -$2,907
Management: -$4,651
Total operating expenses: -$20,665
Net operating income: $37,475
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: $576,535
Cap rate at this price$37,475 / $600,000: 6.25%
Priced above that value by: $23,465
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: $502
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

$600,000 rental NOI questions

What is the NOI on a $600,000 rental property?

At $5,100 rent with 5% vacancy, taxes of $7,200, insurance of $3,000 and 18% of collected income for maintenance, reserves and management, net operating income is about $37,475 a year, or $3,123 a month. That is an expense ratio of 36%. Your taxes and insurance will move it.

What is a good NOI for a $600,000 property?

One that produces the cap rate comparable rentals sell at. In a 5% market a $600,000 property needs about $30,000 of NOI to be fairly priced; in an 8% market it needs $48,000. At $5,100 rent this one produces $37,475, a 6.2% cap rate.

How much do property taxes change the NOI on a $600,000 rental?

Dollar for dollar. Taxes at 0.5% of price cost $3,000 a year and at 2.5% they cost $15,000, a $12,000 swing in NOI on the same rent. At a 6.5% cap rate that is a $184,615 difference in what the property is worth. Use the bill you will pay after the sale, not the seller's.