Cap Rate on a $150,000 Rental Property

A $150,000 rental at $1,275 a month in rent produces about $9,369 of net operating income and a 6.2% cap rate under standard expenses. It needs $1,395 in rent to reach a 7% cap rate at this price.

The NOI on a $150,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($1,800 a year), insurance at 0.5% ($750), 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: $1,275 a month (0.85% of price), $15,300 a year
Collected after vacancy: $14,535
Operating expenses: $5,166 (36% of collected income)
Net operating income: $9,369, or $781 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $150,000 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
$750	0.5%	$4,461	2.97%	16.7
$900	0.6%	$5,863	3.91%	13.9
$1,050	0.7%	$7,265	4.84%	11.9
$1,200	0.8%	$8,668	5.78%	10.4
$1,350	0.9%	$10,070	6.71%	9.3
$1,500	1.0%	$11,472	7.65%	8.3
$1,650	1.1%	$12,874	8.58%	7.6
$1,800	1.2%	$14,276	9.52%	6.9

How property taxes change the cap rate

At $1,275 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%	$750	$10,419	6.95%
0.8%	$1,200	$9,969	6.65%
1.0%	$1,500	$9,669	6.45%
1.2%	$1,800	$9,369	6.25%
1.5%	$2,250	$8,919	5.95%
2.0%	$3,000	$8,169	5.45%
2.5%	$3,750	$7,419	4.95%

What this NOI is worth at market cap rates

$9,369 of NOI valued at each cap rate, and the gap to the $150,000 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 $150,000
4%	$234,218	$84,218
5%	$187,374	$37,374
6%	$156,145	$6,145
7%	$133,839	-$16,161
8%	$117,109	-$32,891
9%	$104,097	-$45,903
10%	$93,687	-$56,313

Run the $150,000 property yourself

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

Cap rate

6.25%

Solid

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

$9,369 NOI / $150,000 price

Net operating income

Gross scheduled income: $15,300
Vacancy: -$765
Effective gross income: $14,535
Taxes and insurance: -$2,550
Maintenance, reserves, management: -$2,616
Net operating income: $9,369
Monthly NOI: $781
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $133,839
Priced above that by: $16,161
NOI needed at this price: $10,500
Rent needed at this pricevs $1,275 now: $1,396

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

$150,000 rental cap rate questions

What is a good cap rate for a $150,000 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 $150,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $1,275 rent this one produces 6.2%.

How much rent does a $150,000 property need for a 7% cap rate?

About $1,395 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $1,235 and for 8% it is $1,555. Lower property taxes bring each figure down.

What is the NOI on a $150,000 rental?

At $1,275 rent with 5% vacancy, taxes of $1,800, insurance of $750 and 18% of collected rent for maintenance, reserves and management, net operating income is $9,369 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.