Cap Rate on a $200,000 Rental Property

A $200,000 rental at $1,700 a month in rent produces about $12,492 of net operating income and a 6.2% cap rate under standard expenses. It needs $1,860 in rent to reach a 7% cap rate at this price.

The NOI on a $200,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($2,400 a year), insurance at 0.5% ($1,000), 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: $1,700 a month (0.85% of price), $20,400 a year
Collected after vacancy: $19,380
Operating expenses: $6,888 (36% of collected income)
Net operating income: $12,492, or $1,041 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $200,000 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
$1,000	0.5%	$5,948	2.97%	16.7
$1,200	0.6%	$7,818	3.91%	13.9
$1,400	0.7%	$9,687	4.84%	11.9
$1,600	0.8%	$11,557	5.78%	10.4
$1,800	0.9%	$13,426	6.71%	9.3
$2,000	1.0%	$15,296	7.65%	8.3
$2,200	1.1%	$17,166	8.58%	7.6
$2,400	1.2%	$19,035	9.52%	6.9

How property taxes change the cap rate

At $1,700 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%	$1,000	$13,892	6.95%
0.8%	$1,600	$13,292	6.65%
1.0%	$2,000	$12,892	6.45%
1.2%	$2,400	$12,492	6.25%
1.5%	$3,000	$11,892	5.95%
2.0%	$4,000	$10,892	5.45%
2.5%	$5,000	$9,892	4.95%

What this NOI is worth at market cap rates

$12,492 of NOI valued at each cap rate, and the gap to the $200,000 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 $200,000
4%	$312,290	$112,290
5%	$249,832	$49,832
6%	$208,193	$8,193
7%	$178,451	-$21,549
8%	$156,145	-$43,855
9%	$138,796	-$61,204
10%	$124,916	-$75,084

Run the $200,000 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.

$12,492 NOI / $200,000 price

Net operating income

Gross scheduled income: $20,400
Vacancy: -$1,020
Effective gross income: $19,380
Taxes and insurance: -$3,400
Maintenance, reserves, management: -$3,488
Net operating income: $12,492
Monthly NOI: $1,041
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $178,451
Priced above that by: $21,549
NOI needed at this price: $14,000
Rent needed at this pricevs $1,700 now: $1,861

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

$200,000 rental cap rate questions

What is a good cap rate for a $200,000 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 $200,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $1,700 rent this one produces 6.2%.

How much rent does a $200,000 property need for a 7% cap rate?

About $1,860 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $1,645 and for 8% it is $2,075. Lower property taxes bring each figure down.

What is the NOI on a $200,000 rental?

At $1,700 rent with 5% vacancy, taxes of $2,400, insurance of $1,000 and 18% of collected rent for maintenance, reserves and management, net operating income is $12,492 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.