Wondering if a 3 to 5 percent cap rate in Northbrook is good, or if it means you should keep looking? You are not alone. Between higher Illinois property taxes, HOA dues on condos, and micro-location differences near Metra and shopping, two similar-looking rentals can perform very differently. In this guide, you will learn how to calculate cap rates the right way for Northbrook, what local expenses to expect, how location shifts your numbers, and how to pressure test your assumptions before you buy. Let’s dive in.
Cap rate basics you can trust
Cap rate is a simple formula that helps you compare properties on operating performance only. It is your Net Operating Income divided by the purchase price or current market value. Think of it as the unlevered return from rents after expenses.
- NOI (annual) = Effective Gross Income minus Operating Expenses.
- Effective Gross Income = Scheduled Rent minus Vacancy and Credit Loss.
- Do not include mortgage payments, depreciation, or income taxes in NOI.
A higher cap rate usually means higher expected operating return and often higher perceived risk. Compare cap rates among similar property types and locations, and adjust for age and capital needs when you compare across different assets.
How to calculate NOI in Northbrook
A solid cap rate starts with accurate NOI. In Northbrook, careful expense modeling matters because taxes and HOA dues can swing your outcome.
Start with realistic income
Begin with scheduled monthly rent multiplied by 12. Add recurring income that is truly dependable, such as parking or laundry, if it applies. Avoid counting one-time fees or speculative add-ons.
Subtract vacancy and credit loss
Use market-supported vacancy. Conservative underwriting often uses 4 to 8 percent. In strong micro-markets with transit access and a strong school reputation, you might use 3 to 5 percent. For higher turnover areas or riskier assets, 6 to 10 percent can be prudent.
Model operating expenses locally
- Property taxes: Illinois and suburban Cook County have higher effective tax burdens. Budget using the actual Cook County tax bill when possible. If you must estimate, a conservative range of roughly 1.5 to 3.0 percent of market value can be a placeholder, then verify with the Assessor or Treasurer data for the specific taxing districts.
- Insurance: For a single-family rental, a ballpark can range from about 800 to 2,000 dollars per year depending on coverage and risk. Condos often rely on the building’s master policy plus HO-6 and liability coverage. Flood-prone properties may require additional policies.
- HOA or condo dues: These are direct recurring expenses and can be the largest line item for a condo. Small buildings might be 150 to 400 dollars per month, while amenity buildings can run 400 to 800 dollars or more per month. Always check for special assessments and the reserve study.
- Property management: Full-service residential management typically runs 7 to 12 percent of collected rents. In suburban single-family, 8 to 10 percent is common. Include leasing or placement fees when you model turnover.
- Maintenance and repairs: A common starting point is 3 to 8 percent of gross rent, or a per-unit reserve such as 1,000 to 3,000 dollars per year. Older homes trend higher.
- Capital expenditures reserves: Set aside about 250 to 1,000 dollars per unit per year depending on age and systems. If the roof or HVAC is older, budget toward the higher end.
- Utilities: Confirm who pays for water, sewer, garbage, gas, and electric. Utility responsibility can materially impact NOI.
- Other operating expenses: Budget for items like advertising, legal and accounting, licensing and inspections, snow removal and grounds care, lawn care, and pest control. Together these can add roughly 1 to 2 percent of gross rent.
Northbrook examples: from math to meaning
Numbers below are illustrative. Replace them with current, property-specific figures before you make decisions.
Example A: Single-family rental
- Purchase price: 450,000 dollars
- Monthly rent: 3,000 dollars, which is 36,000 dollars per year
- Vacancy and credit loss: 5 percent, which is 1,800 dollars
- Property tax: assume 2.0 percent of value, which is 9,000 dollars per year
- Insurance: 1,200 dollars per year
- Management: about 8 percent of collected rent, about 2,880 dollars
- Repairs and maintenance: 5 percent of gross rent, which is 1,800 dollars
- CapEx reserve: 3,000 dollars per year
- Other operating: 500 dollars; tenant pays utilities
Quick math:
- Effective Gross Income: 36,000 minus 1,800 equals 34,200 dollars
- Operating expenses total: 9,000 + 1,200 + 2,880 + 1,800 + 3,000 + 500 equals 18,380 dollars
- NOI: 34,200 minus 18,380 equals 15,820 dollars
- Cap rate: 15,820 divided by 450,000 equals 3.52 percent
Insight: That cap rate is on the low side, which reflects mature North Shore pricing and higher taxes. You might accept a lower cap rate if you value stable tenant demand and lower vacancy risk.
Example B: Condo with higher HOA dues
- Purchase price: 300,000 dollars
- Monthly rent: 2,100 dollars, which is 25,200 dollars per year
- Vacancy and credit loss: 5 percent, which is 1,260 dollars
- Property tax: assume 1.8 percent, which is 5,400 dollars per year
- Insurance: 600 dollars per year
- HOA dues: 450 dollars per month, which is 5,400 dollars per year
- Management: about 8 percent of rent collected, about 2,016 dollars
- Repairs and maintenance: 5 percent of gross rent, which is 1,260 dollars
- CapEx reserve: 2,000 dollars per year
Quick math:
- Effective Gross Income: 25,200 minus 1,260 equals 23,940 dollars
- Operating expenses total: 5,400 + 600 + 5,400 + 2,016 + 1,260 + 2,000 equals 16,676 dollars
- NOI: 23,940 minus 16,676 equals 7,264 dollars
- Cap rate: 7,264 divided by 300,000 equals 2.42 percent
Insight: HOA-heavy condos can produce very low cap rates or even negative cash flow if priced aggressively. Always review the reserve study and recent meeting minutes for special assessment risk.
How location shifts your cap rate
Micro-location in Northbrook can move both rent and expense risk. Keep an eye on these factors:
Transit access
Homes closer to Metra stations often command stronger demand and lower vacancy. Investors may accept a lower cap rate if they believe vacancy risk is lower.
School district reputation
A strong reputation can support premium rents and longer tenancies. Model a lower vacancy assumption only if local data supports it.
Walkability and amenities
Proximity to downtown shopping, parks, and everyday services tends to lift rent potential. Still, run the numbers with property-specific comps.
Property type and condition
Single-family homes can attract longer tenancies. Condos can offer lower direct maintenance but bring HOA risk and potential assessments. Older homes often require higher CapEx and maintenance budgets.
Flood and environmental risk
Check flood maps and water history. Flood zone properties may require flood insurance and can carry higher ongoing maintenance costs.
Local rules and licensing
Confirm Village of Northbrook rental licensing and any inspection programs. Compliance steps can add costs or affect your timeline.
Market competition
In competitive submarkets, buyers sometimes accept lower cap rates for highly desirable locations. Less liquid areas may need higher cap rates to attract buyers.
Quick sensitivity checks
Small changes can meaningfully shift your return. Run these tests before you write an offer:
- Vacancy: Move your assumption by plus or minus 2 to 4 percent and note the impact on NOI and cap rate.
- Property taxes: Change tax load by 0.25 to 0.50 percent of value. For a 450,000 dollar home, a 0.5 percent increase is 2,250 dollars per year, which reduces NOI dollar-for-dollar and cuts cap rate.
- HOA dues: Adjust by 100 to 300 dollars per month and check how quickly a condo deal turns.
- CapEx and maintenance: Increase reserves for older systems to see how they affect your safety margin.
What is a good cap rate here
There is no single number that fits every asset. In mature, amenity-rich suburbs like Northbrook, conservative underwriting often lands in the mid single digits or lower. Value-add or riskier plays may show higher cap rates, but they usually require more capital and execution to realize the pro forma.
Cap rate vs cash-on-cash return
Cap rate is unlevered and measures the property’s operating efficiency. Cash-on-cash includes your financing terms and down payment, which can raise or lower the return on your invested cash. Use cap rate to compare properties on operations, then use cash-on-cash and debt coverage to understand your specific financed outcome.
Your Northbrook due diligence checklist
Use this list to lock down real numbers before you buy:
- Current rent roll, leases, and security deposit details if tenant-occupied
- Seller utility bills for 12 to 24 months and recent property tax bills
- Cook County Assessor and Treasurer data to verify assessments and exemptions
- HOA documents, budget, reserve study, meeting minutes, and any special assessments
- Full inspection report covering roof, HVAC, electrical, foundation, and plumbing
- Village of Northbrook rental licensing and inspection requirements
- Flood map review and any history of water issues
- Local rent and sale comps from a broker or MLS, plus vacancy and time-on-market trends
- Property management quotes for fees and expected vacancy or turnover costs
- Insurance quotes, including flood and umbrella if appropriate
Put local expertise to work
If you want a rental in Northbrook, you need precise inputs and a clear view of how micro-location, taxes, and HOA dynamics shape your cap rate. A disciplined underwriting process helps you compare opportunities apples-to-apples and avoid surprises. Our team brings deep North Shore knowledge, market analysis, and end-to-end coordination so you can buy with confidence and a plan.
Ready to evaluate a property or stress test an LOI? Get tailored guidance and a straight answer on cap rate versus cash-on-cash so you can move forward with clarity. Contact Unknown Company to Get a Complimentary Home Consultation.
FAQs
What is a cap rate for a Northbrook rental property
- It is the annual Net Operating Income divided by the purchase price or market value, which shows the unlevered operating return before financing.
How do Cook County property taxes affect a Northbrook cap rate
- Higher effective tax loads reduce NOI dollar-for-dollar, which lowers the cap rate, so you should always underwrite using the actual tax bill when available.
Are condos or single-family homes better for cap rate in Northbrook
- Single-family homes can offer longer tenancies, while condos may have lower direct maintenance but higher HOA dues and assessment risk that can depress the cap rate.
How should I estimate vacancy when underwriting a Northbrook rental
- Conservative models often use 4 to 8 percent, with 3 to 5 percent in strong micro-locations and 6 to 10 percent for higher turnover or riskier scenarios.
What documents should I review before buying a Northbrook investment property
- Review leases, rent roll, tax bills, utility bills, inspection reports, HOA budgets and minutes, local licensing rules, flood maps, comps, management quotes, and insurance quotes.
What is the difference between cap rate and cash-on-cash return for Northbrook investments
- Cap rate excludes financing and measures operating efficiency, while cash-on-cash includes your loan terms and down payment to show the return on your invested cash.
