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.

Cap rate (capitalization rate) is a property's net operating income divided by its purchase price, expressed as a percentage. It measures the unleveraged annual return a property generates and is the standard metric for comparing rental properties before financing is applied.

What is considered a good cap rate in 2026?

For residential rentals in 2026, 5%–8% is the working range for solid markets. Above 8% generally signals higher-risk markets (rougher neighborhoods, slower appreciation, higher vacancy). Below 5% is common in expensive coastal metros where investors are paying for appreciation rather than cash flow.

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

Cap rate ignores financing — it measures the return as if you paid all cash. Cash-on-cash return measures your actual return on the cash you invested after accounting for the mortgage. A 6% cap-rate property can produce a 12% cash-on-cash return with leverage.

What expenses count toward NOI?

NOI includes property taxes, insurance, property management, vacancy reserve, routine maintenance, capex reserve, HOA dues, and utilities the landlord pays. NOI excludes mortgage interest, depreciation, and one-time capital expenditures (those are below-the-line items).

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 cash-flow-positive rentals fail the 1% rule in higher-priced markets, so use it as a first filter, not a final test.

What's the best way to research cap rates in a specific city?

Start with the per-city page for the market you're researching. Every city page on CapRateCity shows the median cap rate (calculated from local home prices, rents, taxes, and vacancy), the 1% rule status, the 5-year cap rate trajectory, and three financing scenarios pre-filled with city medians.