Key takeaways
- Cap rate = net operating income ÷ price. Higher = more yield/risk; lower = pricier/safer.
- Most U.S. rentals trade in a 4%–10% range.
- Cap rates rise with interest rates and risk, and fall in hot, low-risk metros.
- Compare a property only to similar properties in the same market.
What a cap rate actually tells you
A cap rate is the unleveraged annual yield on a property — its net operating income divided by price. Because it ignores the loan, it's the cleanest way to compare two deals. Run any property in the cap rate calculator to see its NOI and rate in seconds.
Typical ranges by market type
| Property / market | Typical cap rate |
|---|---|
| Class A multifamily, major metro | 4% – 5.5% |
| Class B/C apartments, secondary market | 5.5% – 7.5% |
| Single-family rental, cash-flow market | 6% – 9% |
| Higher-risk / tertiary market | 8% – 12% |
Illustrative ranges that move with rates and demand. For current national figures, see the CBRE U.S. Cap Rate Survey.
What moves cap rates
Two forces dominate. Interest rates: when borrowing costs rise, buyers pay less for the same income, so cap rates rise and prices fall. Risk and demand: a stable, in-demand asset commands a lower cap rate because buyers will accept a smaller yield for safety and appreciation.
High vs. low — which do you want?
A low cap rate signals a premium, lower-risk property leaning on appreciation. A high cap rate signals more risk or more current cash flow. Cash-flow investors chase higher cap rates; appreciation investors accept lower ones. Either way, confirm the leveraged picture with cash-on-cash, and if you're financing with an investor loan, check the DSCR.
Frequently asked questions
Is a higher or lower cap rate better?
It depends on your goal. Lower = pricier, lower-risk; higher = more risk or more cash flow. Neither is universally better.
Is a 7% cap rate good?
Solid in many markets — typical for a stable Class B/C rental. High for Class A in an expensive metro, modest in a deep cash-flow market.
Why are cap rates lower in big cities?
Strong demand and lower risk let buyers pay more for the same income, compressing the cap rate in exchange for appreciation and liquidity.