Cap Rate on a $100,000 Rental Property

A $100,000 rental at $850 a month in rent produces about $6,246 of net operating income and a 6.2% cap rate under standard expenses. It needs $930 in rent to reach a 7% cap rate at this price.

The NOI on a $100,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($1,200 a year), insurance at 0.5% ($500), and 5% maintenance, 5% capital reserves and 8% management on collected rent. Taxes vary the most by state, so replace them with the real bill.

Rent: $850 a month (0.85% of price), $10,200 a year
Collected after vacancy: $9,690
Operating expenses: $3,444 (36% of collected income)
Net operating income: $6,246, or $520 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $100,000 property

Rent as a percent of price is the fastest screen. Roughly, each 0.1% of price in monthly rent adds about 0.9 points of cap rate under these expense assumptions.

Monthly rent	Rent / price	NOI	Cap rate	GRM
$500	0.5%	$2,974	2.97%	16.7
$600	0.6%	$3,909	3.91%	13.9
$700	0.7%	$4,844	4.84%	11.9
$800	0.8%	$5,778	5.78%	10.4
$900	0.9%	$6,713	6.71%	9.3
$1,000	1.0%	$7,648	7.65%	8.3
$1,100	1.1%	$8,583	8.58%	7.6
$1,200	1.2%	$9,518	9.52%	6.9

How property taxes change the cap rate

At $850 rent. Effective tax rates run from under 0.5% in Hawaii to over 2% in New Jersey, Illinois and parts of Texas, and the cap rate follows.

Tax rate	Annual taxes	NOI	Cap rate
0.5%	$500	$6,946	6.95%
0.8%	$800	$6,646	6.65%
1.0%	$1,000	$6,446	6.45%
1.2%	$1,200	$6,246	6.25%
1.5%	$1,500	$5,946	5.95%
2.0%	$2,000	$5,446	5.45%
2.5%	$2,500	$4,946	4.95%

What this NOI is worth at market cap rates

$6,246 of NOI valued at each cap rate, and the gap to the $100,000 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 $100,000
4%	$156,145	$56,145
5%	$124,916	$24,916
6%	$104,097	$4,097
7%	$89,226	-$10,774
8%	$78,073	-$21,928
9%	$69,398	-$30,602
10%	$62,458	-$37,542

Run the $100,000 property yourself

Preloaded with the numbers above. Change the rent, taxes, insurance or expenses to match the property.

Build the NOI from rent, vacancy and expenses

Cap rate

6.25%

Solid

Solid. Mid-priced and secondary markets. Enough yield to cash flow with a normal loan.

$6,246 NOI / $100,000 price

Net operating income

Gross scheduled income: $10,200
Vacancy: -$510
Effective gross income: $9,690
Taxes and insurance: -$1,700
Maintenance, reserves, management: -$1,744
Net operating income: $6,246
Monthly NOI: $520
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $89,226
Priced above that by: $10,774
NOI needed at this price: $7,000
Rent needed at this pricevs $850 now: $931

Other screens

Gross rent multiplierprice / annual gross rent: 9.8
Rent to pricemonthly rent / price. The 1% rule.: 0.85%
Each $100/mo of rent is worthof value at the target cap rate: $13,354
Each $1,000/yr of expense costsof value at the target cap rate: $14,286

$100,000 rental cap rate questions

What is a good cap rate for a $100,000 property?

The same as for any property in its market: at or above what comparable rentals sell for. Price does not change the benchmark. A $100,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $850 rent this one produces 6.2%.

How much rent does a $100,000 property need for a 7% cap rate?

About $930 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $825 and for 8% it is $1,040. Lower property taxes bring each figure down.

What is the NOI on a $100,000 rental?

At $850 rent with 5% vacancy, taxes of $1,200, insurance of $500 and 18% of collected rent for maintenance, reserves and management, net operating income is $6,246 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.