Cap Rate on a $750,000 Rental Property

A $750,000 rental at $6,375 a month in rent produces about $46,844 of net operating income and a 6.2% cap rate under standard expenses. It needs $6,980 in rent to reach a 7% cap rate at this price.

The NOI on a $750,000 property

Assumptions: 5% vacancy, taxes at 1.2% of price ($9,000 a year), insurance at 0.5% ($3,750), 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: $6,375 a month (0.85% of price), $76,500 a year
Collected after vacancy: $72,675
Operating expenses: $25,832 (36% of collected income)
Net operating income: $46,844, or $3,904 a month
Cap rate: 6.25%. Gross rent multiplier: 9.8

Cap rate at different rents on a $750,000 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
$3,750	0.5%	$22,305	2.97%	16.7
$4,500	0.6%	$29,316	3.91%	13.9
$5,250	0.7%	$36,327	4.84%	11.9
$6,000	0.8%	$43,338	5.78%	10.4
$6,750	0.9%	$50,349	6.71%	9.3
$7,500	1.0%	$57,360	7.65%	8.3
$8,250	1.1%	$64,371	8.58%	7.6
$9,000	1.2%	$71,382	9.52%	6.9

How property taxes change the cap rate

At $6,375 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%	$3,750	$52,094	6.95%
0.8%	$6,000	$49,844	6.65%
1.0%	$7,500	$48,344	6.45%
1.2%	$9,000	$46,844	6.25%
1.5%	$11,250	$44,594	5.95%
2.0%	$15,000	$40,844	5.45%
2.5%	$18,750	$37,094	4.95%

What this NOI is worth at market cap rates

$46,844 of NOI valued at each cap rate, and the gap to the $750,000 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 $750,000
4%	$1,171,088	$421,088
5%	$936,870	$186,870
6%	$780,725	$30,725
7%	$669,193	-$80,807
8%	$585,544	-$164,456
9%	$520,483	-$229,517
10%	$468,435	-$281,565

Run the $750,000 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.

$46,844 NOI / $750,000 price

Net operating income

Gross scheduled income: $76,500
Vacancy: -$3,825
Effective gross income: $72,675
Taxes and insurance: -$12,750
Maintenance, reserves, management: -$13,082
Net operating income: $46,844
Monthly NOI: $3,904
Expense ratiooperating expenses / collected income: 36%

At a 7.00% cap rate

Value of this NOI: $669,193
Priced above that by: $80,807
NOI needed at this price: $52,500
Rent needed at this pricevs $6,375 now: $6,980

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

$750,000 rental cap rate questions

What is a good cap rate for a $750,000 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 $750,000 property in a 5% cap rate metro is fairly priced at 5%, and one in an 8% market is fairly priced at 8%. At $6,375 rent this one produces 6.2%.

How much rent does a $750,000 property need for a 7% cap rate?

About $6,980 a month, or 0.93% of price, under standard expense assumptions. For 6% it is $6,180 and for 8% it is $7,780. Lower property taxes bring each figure down.

What is the NOI on a $750,000 rental?

At $6,375 rent with 5% vacancy, taxes of $9,000, insurance of $3,750 and 18% of collected rent for maintenance, reserves and management, net operating income is $46,844 a year, an expense ratio of 36%. Your actual taxes and insurance will move it.