Cap rate (capitalization rate) is net operating income divided by purchase price. It tells you the unleveraged return a property generates. A $300,000 property producing $18,000 NOI has a 6% cap rate. It's the most common metric for comparing rental properties because it strips out financing and gives you an apples-to-apples comparison.

What is a good cap rate for rental property?

For residential rentals, 5-8% is generally considered solid. Above 8% is excellent but often comes with higher risk (rougher neighborhoods, older buildings, declining markets). Below 5% is common in expensive metros where investors rely more on appreciation than cash flow.

How is cap rate different from cash-on-cash return?

Cap rate ignores financing — it measures the property's return as if you paid all cash. Cash-on-cash return measures your actual return on the cash you invested, factoring in your mortgage. A property with a 6% cap rate could yield a 12% cash-on-cash return with leverage.

What is the 1% rule in real estate?

The 1% rule says monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. It's a quick screening tool — many successful rentals don't pass the 1% rule, especially in higher-priced markets.

What is the BRRRR strategy?

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. You buy a distressed property below market value, renovate it, rent it out, then do a cash-out refinance based on the new appraised value to pull out most or all of your original capital and repeat the process.

Where does CapRateCity get its data?

Our city-level data draws from publicly available sources including U.S. Census Bureau population and income figures, Zillow Home Value Index for median prices, HUD Fair Market Rents, and state/county tax assessor records. Data is updated periodically.

CapRateCity

The Notebook · Field Guides & Data Notes

The CapRateCity Notebook

Guides, data analyses, and worked examples for rental property investors. No fluff — the numbers and strategies that actually move a deal.

87 essays · Edited by Jake McEwen

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Cap Rate Metrics

5 essays

01
What Is a Good Cap Rate? 2026 Guide for Rental Property Investors
Cap rate ranges by city, what affects cap rates, and where to find 6%+ markets. Data from 775 US cities.
Mar 31, 2026
9 min
02
How to Calculate Cap Rate on Rental Property
The cap rate formula with step-by-step examples using real city data. Common mistakes to avoid and free calculator.
Mar 31, 2026
8 min
03
Average Cap Rates by City: Data for 775 US Markets
Regional averages, top 10 highest, top 10 lowest, and how to interpret cap rates.
Apr 4, 2026
8 min
04
Cap Rate Compression: Why Cap Rates Fall (and What Investors Should Do)
Why cap rates fall, historical compression cycles, and how to invest during them.
Apr 26, 2026
9 min
05
Cap Rate vs Cash-on-Cash Return: What's the Difference?
Two essential metrics that tell very different stories about your investment. Learn when to use each and why they sometimes disagree.
Mar 1, 2025
7 min

Cash Flow Metrics

7 essays

Financing & Loans

12 essays

Deal Types & Strategies

16 essays

Market Selection & Analysis

13 essays

Tax Strategy

8 essays

Operations & Management

16 essays

Investor Personas

7 essays

Entity & Legal Structure

3 essays

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The CapRateCity Report

Weekly market analysis: highest cap rate cities, emerging markets, and deal breakdowns. Free, no spam.