Cap Rate on a $350,000 Rental Property

A $350,000 rental at $2,975 a month in rent produces about $21,860 of net operating income and a 6.2% cap rate under standard expenses. It needs $3,255 in rent to reach a 7% cap rate at this price.

The NOI on a $350,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($4,200 a year), insurance at 0.5% ($1,750), 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: $2,975 a month (0.85% of price), $35,700 a year
Collected after vacancy: $33,915
Operating expenses: $12,055 (36% of collected income)
Net operating income: $21,860, or $1,822 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $350,000 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
$1,750	0.5%	$10,409	2.97%	16.7
$2,100	0.6%	$13,681	3.91%	13.9
$2,450	0.7%	$16,953	4.84%	11.9
$2,800	0.8%	$20,224	5.78%	10.4
$3,150	0.9%	$23,496	6.71%	9.3
$3,500	1.0%	$26,768	7.65%	8.3
$3,850	1.1%	$30,040	8.58%	7.6
$4,200	1.2%	$33,312	9.52%	6.9

How property taxes change the cap rate

At $2,975 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%	$1,750	$24,310	6.95%
0.8%	$2,800	$23,260	6.65%
1.0%	$3,500	$22,560	6.45%
1.2%	$4,200	$21,860	6.25%
1.5%	$5,250	$20,810	5.95%
2.0%	$7,000	$19,060	5.45%
2.5%	$8,750	$17,310	4.95%

What this NOI is worth at market cap rates

$21,860 of NOI valued at each cap rate, and the gap to the $350,000 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 $350,000
4%	$546,508	$196,508
5%	$437,206	$87,206
6%	$364,338	$14,338
7%	$312,290	-$37,710
8%	$273,254	-$76,746
9%	$242,892	-$107,108
10%	$218,603	-$131,397

Run the $350,000 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.

$21,860 NOI / $350,000 price

Net operating income

Gross scheduled income: $35,700
Vacancy: -$1,785
Effective gross income: $33,915
Taxes and insurance: -$5,950
Maintenance, reserves, management: -$6,105
Net operating income: $21,860
Monthly NOI: $1,822
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $312,290
Priced above that by: $37,710
NOI needed at this price: $24,500
Rent needed at this pricevs $2,975 now: $3,257

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

$350,000 rental cap rate questions

What is a good cap rate for a $350,000 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 $350,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $2,975 rent this one produces 6.2%.

How much rent does a $350,000 property need for a 7% cap rate?

About $3,255 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $2,885 and for 8% it is $3,630. Lower property taxes bring each figure down.

What is the NOI on a $350,000 rental?

At $2,975 rent with 5% vacancy, taxes of $4,200, insurance of $1,750 and 18% of collected rent for maintenance, reserves and management, net operating income is $21,860 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.