Cap Rate on a $250,000 Rental Property

A $250,000 rental at $2,125 a month in rent produces about $15,615 of net operating income and a 6.2% cap rate under standard expenses. It needs $2,325 in rent to reach a 7% cap rate at this price.

The NOI on a $250,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($3,000 a year), insurance at 0.5% ($1,250), 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: $2,125 a month (0.85% of price), $25,500 a year
Collected after vacancy: $24,225
Operating expenses: $8,611 (36% of collected income)
Net operating income: $15,615, or $1,301 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $250,000 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
$1,250	0.5%	$7,435	2.97%	16.7
$1,500	0.6%	$9,772	3.91%	13.9
$1,750	0.7%	$12,109	4.84%	11.9
$2,000	0.8%	$14,446	5.78%	10.4
$2,250	0.9%	$16,783	6.71%	9.3
$2,500	1.0%	$19,120	7.65%	8.3
$2,750	1.1%	$21,457	8.58%	7.6
$3,000	1.2%	$23,794	9.52%	6.9

How property taxes change the cap rate

At $2,125 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%	$1,250	$17,365	6.95%
0.8%	$2,000	$16,615	6.65%
1.0%	$2,500	$16,115	6.45%
1.2%	$3,000	$15,615	6.25%
1.5%	$3,750	$14,865	5.95%
2.0%	$5,000	$13,615	5.45%
2.5%	$6,250	$12,365	4.95%

What this NOI is worth at market cap rates

$15,615 of NOI valued at each cap rate, and the gap to the $250,000 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 $250,000
4%	$390,363	$140,363
5%	$312,290	$62,290
6%	$260,242	$10,242
7%	$223,064	-$26,936
8%	$195,181	-$54,819
9%	$173,494	-$76,506
10%	$156,145	-$93,855

Run the $250,000 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.

$15,615 NOI / $250,000 price

Net operating income

Gross scheduled income: $25,500
Vacancy: -$1,275
Effective gross income: $24,225
Taxes and insurance: -$4,250
Maintenance, reserves, management: -$4,361
Net operating income: $15,615
Monthly NOI: $1,301
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $223,064
Priced above that by: $26,936
NOI needed at this price: $17,500
Rent needed at this pricevs $2,125 now: $2,327

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

$250,000 rental cap rate questions

What is a good cap rate for a $250,000 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 $250,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $2,125 rent this one produces 6.2%.

How much rent does a $250,000 property need for a 7% cap rate?

About $2,325 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $2,060 and for 8% it is $2,595. Lower property taxes bring each figure down.

What is the NOI on a $250,000 rental?

At $2,125 rent with 5% vacancy, taxes of $3,000, insurance of $1,250 and 18% of collected rent for maintenance, reserves and management, net operating income is $15,615 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.