Cap Rate on a $300,000 Rental Property

A $300,000 rental at $2,550 a month in rent produces about $18,737 of net operating income and a 6.2% cap rate under standard expenses. It needs $2,790 in rent to reach a 7% cap rate at this price.

The NOI on a $300,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($3,600 a year), insurance at 0.5% ($1,500), 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: $2,550 a month (0.85% of price), $30,600 a year
Collected after vacancy: $29,070
Operating expenses: $10,333 (36% of collected income)
Net operating income: $18,737, or $1,561 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $300,000 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
$1,500	0.5%	$8,922	2.97%	16.7
$1,800	0.6%	$11,726	3.91%	13.9
$2,100	0.7%	$14,531	4.84%	11.9
$2,400	0.8%	$17,335	5.78%	10.4
$2,700	0.9%	$20,140	6.71%	9.3
$3,000	1.0%	$22,944	7.65%	8.3
$3,300	1.1%	$25,748	8.58%	7.6
$3,600	1.2%	$28,553	9.52%	6.9

How property taxes change the cap rate

At $2,550 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%	$1,500	$20,837	6.95%
0.8%	$2,400	$19,937	6.65%
1.0%	$3,000	$19,337	6.45%
1.2%	$3,600	$18,737	6.25%
1.5%	$4,500	$17,837	5.95%
2.0%	$6,000	$16,337	5.45%
2.5%	$7,500	$14,837	4.95%

What this NOI is worth at market cap rates

$18,737 of NOI valued at each cap rate, and the gap to the $300,000 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 $300,000
4%	$468,435	$168,435
5%	$374,748	$74,748
6%	$312,290	$12,290
7%	$267,677	-$32,323
8%	$234,218	-$65,783
9%	$208,193	-$91,807
10%	$187,374	-$112,626

Run the $300,000 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.

$18,737 NOI / $300,000 price

Net operating income

Gross scheduled income: $30,600
Vacancy: -$1,530
Effective gross income: $29,070
Taxes and insurance: -$5,100
Maintenance, reserves, management: -$5,233
Net operating income: $18,737
Monthly NOI: $1,561
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $267,677
Priced above that by: $32,323
NOI needed at this price: $21,000
Rent needed at this pricevs $2,550 now: $2,792

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

$300,000 rental cap rate questions

What is a good cap rate for a $300,000 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 $300,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $2,550 rent this one produces 6.2%.

How much rent does a $300,000 property need for a 7% cap rate?

About $2,790 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $2,470 and for 8% it is $3,115. Lower property taxes bring each figure down.

What is the NOI on a $300,000 rental?

At $2,550 rent with 5% vacancy, taxes of $3,600, insurance of $1,500 and 18% of collected rent for maintenance, reserves and management, net operating income is $18,737 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.