What Is a Good Cap Rate for Rental Property?

"What's a good cap rate?" is the most common question new investors ask — and the honest answer is: it depends. But that's not a cop-out. Here's how to judge a cap rate in context instead of chasing a magic number.

First, a quick refresher

Cap rate = Net Operating Income ÷ purchase price. A property with $18,000 of NOI on a $300,000 price has a 6% cap rate. It measures the property's return before financing, which makes it perfect for comparing deals.

The rough ranges

• 4–5% — common in expensive, high-demand metros. Lower cash return, but often stronger appreciation and lower risk.
• 6–8% — the middle ground many buy-and-hold investors target. A balance of cash flow and stability.
• 9%+ — usually smaller or secondary markets, or higher-risk properties. More cash flow, but check why the number is high.

What "good" really depends on

• Your market — a 5% cap in a coastal metro can beat an 9% cap in a declining town.
• Your strategy — cash-flow investors want higher caps; appreciation investors accept lower ones.
• Risk — stable tenants and low maintenance justify a lower cap; the reverse demands a higher one.
• Financing — cap rate ignores your loan, so pair it with cash-on-cash return to see your real yield.

The practical takeaway

Don't hunt for one universal "good" cap rate. Compare a property's cap rate to similar properties in the same market, then confirm the deal with cash flow, cash-on-cash and DSCR. That context is what separates a good deal from a good-looking number.