What Is a Good Cap Rate for Rental Property?

June 16, 2026 · 5 min read

Cap rate is one of the first numbers serious real estate investors look at when sizing up a rental property. It tells you, at a glance, how much income a property produces relative to its price — before financing. Here is exactly what it means and what a good cap rate looks like today.

What does cap rate mean?

Capitalization rate, or cap rate, is the annual net operating income (NOI) of a property divided by its purchase price, expressed as a percentage. NOI is your rental income minus operating expenses like taxes, insurance, maintenance, and management — but not your mortgage payment.

The formula is simple: Cap Rate = Net Operating Income ÷ Purchase Price.

How to calculate cap rate

Say a property costs $300,000 and produces $24,000 in net operating income per year. Divide $24,000 by $300,000 and you get a cap rate of 8%. That single number lets you compare wildly different properties on the same scale.

What is a good cap rate?

There is no universal answer — a good cap rate depends on the market, the property type, and your risk tolerance. As a general guide:

• 4–5%: Common in expensive, low-risk markets (think coastal metros). Lower returns, but stable.
• 6–8%: A healthy middle ground for many single-family and small multifamily rentals.
• 9%+: Higher returns, usually in secondary markets or value-add deals — often with more risk.

A higher cap rate means more income relative to price, but it often signals higher risk: a tougher neighborhood, deferred maintenance, or a property that needs work. A lower cap rate usually means a safer, more in-demand asset.

Cap rate is only the start

Cap rate ignores financing, appreciation, and the condition of a deal. That is why investors who move fast pair it with ROI, comparable sales, and risk flags before making an offer. Escrow does this automatically — it reads every deal email, pulls the price and cap rate, and scores the property 0 to 10 against your buying criteria so you can spot the strongest deals without doing the math by hand.