What a 9% Cap Rate Means for a Rental Property

A 9% cap rate means the property's net operating income is 9% of its price each year, before any mortgage. A 9% cap rate is high. It is common in low-cost markets, older housing stock and small multifamily, and it usually comes with more turnover, more repairs or slower appreciation. The income is attractive if the expense assumptions hold.

A 9% cap rate on a $300,000 property

To trade at a 9% cap rate, a $300,000 rental needs $27,000 of net operating income. With 5% vacancy, taxes of $3,600, insurance of $1,500 and 18% of collected rent for maintenance, reserves and management, that takes:

Rent of $3,435 a month (1.15% of price, a gross rent multiplier of 7.3)
Gross scheduled income of $41,220, $39,159 after vacancy
Operating expenses of $12,149 (31% of collected income)
Net operating income of $27,010, or $2,251 a month

At a 9% cap rate, every $1,000 of annual NOI is worth $11,111 of value. Each $100 a month of rent, after vacancy and percentage expenses, adds about $10,387 to what the property is worth. Each $1,000 a year of expense removes $11,111.

Rent needed for a 9% cap rate at other prices

Same expense assumptions, different prices. The last column, rent as a percent of price, is the quick screen that tells you whether a market can produce this cap rate at all.

Price	NOI for 9%	Rent needed	Rent / price
$100k	$9,000	$1,145	1.15%
$150k	$13,500	$1,715	1.14%
$200k	$18,000	$2,290	1.15%
$250k	$22,500	$2,860	1.14%
$300k	$27,000	$3,435	1.15%
$350k	$31,500	$4,005	1.14%
$400k	$36,000	$4,580	1.15%
$500k	$45,000	$5,725	1.15%
$600k	$54,000	$6,870	1.15%
$750k	$67,500	$8,585	1.14%
$1m	$90,000	$11,445	1.14%

What NOI is worth at 9% versus nearby cap rates

The same income, valued at 8%, 9%, 10%. This is the spread a buyer and seller argue over.

Annual NOI	Value at 8%	Value at 9%	Value at 10%
$10,000	$125,000	$111,111	$100,000
$15,000	$187,500	$166,667	$150,000
$20,000	$250,000	$222,222	$200,000
$25,000	$312,500	$277,778	$250,000
$30,000	$375,000	$333,333	$300,000
$40,000	$500,000	$444,444	$400,000
$50,000	$625,000	$555,556	$500,000

Check your own property against 9%

The calculator is loaded with the example above and a 9% target. Replace the numbers with yours to see the value your NOI supports at 9%.

Cap rate

9.00%

High

High. Cash-flow markets, older stock, or small multifamily. Check the expense assumptions and the neighborhood.

$27,010 NOI / $300,000 price

Net operating income

Gross scheduled income: $41,220
Vacancy: -$2,061
Effective gross income: $39,159
Taxes and insurance: -$5,100
Maintenance, reserves, management: -$7,049
Net operating income: $27,010
Monthly NOI: $2,251
Expense ratiooperating expenses / collected income: 31%

At a 9.00% cap rate

Value of this NOI: $300,115
Priced below that by: $115
NOI needed at this price: $27,000
Rent needed at this pricevs $3,435 now: $3,434

Other screens

Gross rent multiplierprice / annual gross rent: 7.3
Rent to pricemonthly rent / price. The 1% rule.: 1.15%
Each $100/mo of rent is worthof value at the target cap rate: $10,387
Each $1,000/yr of expense costsof value at the target cap rate: $11,111

9% cap rate questions

Is a 9% cap rate good?

In most markets, yes. A 9% cap rate is above the 4 to 6% typical of major metros and produces enough income to carry a loan with a normal down payment. Compare it to recent sales in the same submarket; a 9% cap rate in a 5% market is a bargain, while in a 9% market it is expensive.

What rent do I need for a 9% cap rate on a $300,000 property?

About $3,435 a month under standard expense assumptions (5% vacancy, taxes 1.2% and insurance 0.5% of price, 18% of collected rent for maintenance, reserves and management). That produces $27,000 of NOI, which is 9% of $300,000.

What is a property with $20,000 of NOI worth at a 9% cap rate?

$222,222. Divide NOI by the cap rate as a decimal: $20,000 / 0.09 = $222,222. At a 9% cap rate, each $1,000 of annual NOI is worth $11,111.