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.

What does BRRRR stand for?

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investing strategy where you buy a distressed property below market value, renovate it to force appreciation, rent it to stabilize income, then do a cash-out refinance based on the new appraised value to pull most or all of your capital out and repeat the process on the next deal.

How much money do I need to start a BRRRR deal in 2026?

Most BRRRR investors need $25K–$65K to start a single-family BRRRR. The figure varies based on local prices, hard-money lender requirements (typically 10–20% down on purchase plus 100% of rehab), and the rehab budget. Properties under $150K can BRRRR with less capital; markets above $300K often need $100K+ even with hard money.

What is the '75% rule' in BRRRR investing?

The 75% rule says your all-in basis (purchase + rehab + holding costs + closing) should be no more than 75% of the after-repair value (ARV). At 75% loan-to-value refinance, you recover most of your capital. The math: ARV × 0.75 ≥ all-in basis means the refi proceeds equal your basis — a true infinite-return deal.

How do I refinance a BRRRR property?

After the property is stabilized (typically a 6-month seasoning period for conventional refi, sometimes 3–6 months for DSCR), order a new appraisal at the post-rehab value, then refinance with a conventional investment property loan (75% LTV) or DSCR loan (75–80% LTV). The refinance pays off the original purchase loan and returns capital based on the new appraised value.

What's the biggest mistake new BRRRR investors make?

Over-estimating ARV. New investors run comps optimistically and end up with a refi appraisal materially below their projection, which strands their capital in the deal. The fix: pull at least 3 sold comps within the last 6 months, within a half-mile radius, in similar condition — and underwrite to the lowest of the three, not the average.

Can I BRRRR with hard money?

Yes — hard money is the most common purchase financing for BRRRR because it lets you close fast and includes rehab proceeds. Typical terms in 2026: 10–12% rate, 2–4 points, 6–18 month term, 80–90% of purchase + 100% of rehab funded through draw schedule. You refinance into long-term conventional or DSCR financing once the property is rented.