Fixed Cost

A fixed cost stays the same whether a property is full or half empty. On a rental, property taxes, insurance and association dues are the main fixed costs. They matter for cap rate because they do not shrink when rent falls, so they drive how sensitive NOI is to vacancy.

The example property has $8,500 of fixed costs: $6,000 of tax and $2,500 of insurance. Its management, maintenance and reserve lines are set as percentages of collected rent, so they fall when rent does. The fixed $8,500 is owed either way.

The calculator uses this split when it solves for the rent needed to hit a target cap rate. Fixed costs are added to the NOI target first, and the result is grossed up for the variable costs and vacancy. A property with a high share of fixed costs has a narrower margin before a rent dip turns into a loss.