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.

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

7% – 8% Cap Rate Cities

Q: 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.

By Jake McEwen · Updated April 26, 2026 · 16 cities in this tier

Cities with cap rates between 7-8% — excellent returns with slightly more market stability than the highest-yield tier. We track 16 cities in this range.

Above 8%7% – 8%6% – 7%5% – 6%4% – 5%3% – 4%Below 3%

7.4%

Avg Cap Rate

$156K

Avg Price

$1,263/mo

Avg Rent

Cities

Understanding 7% – 8% Cap Rate Markets

Cities in the 7% – 8% cap rate range represent some of the strongest cash flow markets in America. The 16 cities in this tier have an average home price of $156K and average rents of $1,263/mo. Prices are 53% below the national average — lower entry points mean less capital at risk and higher potential yields.

The top performer in this tier is Enterprise, AL with a 7.9% cap rate at $175K. The most affordable entry is Danville, IL at $95K. For growth, Big Spring, TX leads with 1.8% annual population growth.

Property taxes average 1.01% in this tier, below the 1.08% national average — a cash flow advantage. Vacancy rates average 6.1%, and population growth averages 0.86% annually. Positive growth supports sustained rental demand and long-term appreciation.

Markets in the 7% – 8% range offer compelling cash flow, but higher yields often correlate with slower growth or higher risk. The best approach is to cross-reference cap rate with population growth, vacancy, and local economic drivers.

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The 7–8% cap rate tier: where cash flow actually pencils

The 7–8% cap rate tier is where most experienced cash-flow investors concentrate. It's high enough to produce meaningful positive cash flow at current rates, durable enough that the underlying markets aren't cratering, and broad enough across geographies that you can find inventory without forcing a specific market. The cities in this tier share characteristics that make them sustainable rather than just temporarily mispriced.

Modest population stability or growth. Unlike the 8%+ tier (often shrinking populations), most 7–8% markets have stable or modestly growing populations. That keeps tenant demand durable.
Diversified employment. Multiple anchor employers rather than single-industry dependency. Healthcare + manufacturing + education + government is the typical mix.
Mid-size MSAs (300K–800K population). Big enough for deep tenant pools and contractor labor; small enough that prices haven't fully compressed.
Functional regulatory environment. Landlord-friendly enough that operations don't consume the cap rate spread. Most are in landlord-leaning states with predictable eviction timelines.

Why most experienced investors prefer this tier over 8%+

The 7–8% cap rate doesn't look as exciting on the spreadsheet as 8.5–9%, but the risk-adjusted math usually favors it. At 7.5% cap with 6% vacancy and reasonable expenses, a $200,000 property produces:

~$15,000 NOI/yr
On 25% down DSCR at 8.5%, mortgage runs $11,500/yr → $3,500/yr or ~$290/mo pre-tax cash flow
Plus principal paydown (~$1,500/yr early), depreciation tax shield, modest appreciation

The 8.5%+ tier produces marginally better cash flow but with materially more operational complexity. The 7–8% tier produces cash flow that's real but not extraordinary, with markets that don't require the same operational excellence. For most investors building a portfolio rather than chasing maximum yield per deal, this is the sweet spot.

The 7–8% tier's actual structural risks

Cap rate compression risk. 7–8% markets are the most likely to be discovered by out-of-state investor capital flow. The Memphis, Indianapolis, Cleveland, Birmingham experience of the past decade is partly a story of cap rate compression as remote investors flooded in. The cities that pass 7% today may be at 6% in 3 years if migration continues.
Insurance trajectory. Many 7–8% markets have older housing stock with insurance pricing that has risen 30–60% since 2020. Carrier availability has tightened in some markets. Verify quotes before underwriting.
Property tax reassessment exposure. Most of these markets have older assessment values that reset on sale. The seller's current tax bill is rarely what you'll pay — underwrite based on assessed-at-purchase-price.
Submarket dispersion. The metro cap rate is the median; specific zips can be 1–2 percentage points higher or lower. Submarket discipline matters as much in this tier as in any other.

How to choose between 7–8% markets

The cities in this tier are often substitutable on cap rate alone — Indianapolis vs Memphis vs Birmingham vs Cleveland produce similar headline math. The differentiators are:

Regulatory environment (Texas/Indiana/Tennessee easier; Ohio/Michigan more compliance burden)
Population trajectory (Sun Belt cities trending up; Rust Belt mixed)
Climate exposure (hurricane in Gulf Coast, hail in the central plains, freeze in the Midwest)
Operator ecosystem (Memphis and Indianapolis have deep turnkey markets; others less so)
Personal preference / familiarity (the city you can drive to has structural advantages over the city you can't)

Use this ranking as a screen, then drill into specific cities. For the next tier down, see the 6–7% cap rate tier — markets where cash flow is still positive but the appreciation thesis starts to matter more.

How This Tier Compares

Tier

Cities

Avg Cap Rate

Avg Price

7% – 8% (this tier)

16

7.4%

$156K

Above 8%

5

8.6%

$135K

6% – 7%

42

6.5%

$171K

5% – 6%

85

5.5%

$208K

All 16 Cities (7% – 8%)

1

Enterprise, AL7.9% cap rate

$175K median$1,420/mo rent0.42% tax0.8% growth

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2

Vidalia, GA7.8% cap rate

$165K median$1,400/mo rent0.93% tax0.9% growth

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3

Decatur, IL7.7% cap rate

$120K median$1,120/mo rent2.06% tax0.2% growth

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4

Lumberton, NC7.6% cap rate

$130K median$1,050/mo rent0.78% tax1.5% growth

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5

McComb, MS7.4% cap rate

$105K median$840/mo rent0.66% tax0.2% growth

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6

Enid, OK7.4% cap rate

$140K median$1,120/mo rent0.88% tax0.9% growth

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7

Clovis, NM7.3% cap rate

$160K median$1,250/mo rent0.77% tax0.8% growth

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8

Fort Polk South, LA7.3% cap rate

$160K median$1,230/mo rent0.54% tax0.3% growth

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9

Big Spring, TX7.2% cap rate

$140K median$1,210/mo rent1.72% tax1.8% growth

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10

Danville, IL7.2% cap rate

$95K median$850/mo rent2.06% tax0.2% growth

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11

Abilene, TX7.2% cap rate

$205K median$1,770/mo rent1.72% tax1.8% growth

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12

Muskogee, OK7.2% cap rate

$155K median$1,220/mo rent0.88% tax0.9% growth

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13

Goldsboro, NC7.2% cap rate

$180K median$1,390/mo rent0.78% tax1.5% growth

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14

Houma, LA7.1% cap rate

$175K median$1,320/mo rent0.54% tax0.3% growth

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15

Thomasville, GA7.1% cap rate

$220K median$1,720/mo rent0.93% tax0.9% growth

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16

Talladega, AL7.1% cap rate

$175K median$1,290/mo rent0.42% tax0.8% growth

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By Region

South (13)

Midwest (2)

West (1)

7% – 8% Cities by State

Alabama (2)Georgia (2)Illinois (2)North Carolina (2)Oklahoma (2)Louisiana (2)Texas (2)Mississippi (1)New Mexico (1)

Frequently Asked Questions

What does a 7% – 8% cap rate mean?

A cap rate 7% – 8% means the property generates strong income relative to its price — for every $100,000 invested, you earn roughly $7,000-$8,000 per year in net operating income before financing.

Are 7% – 8% cap rate cities a good investment?

Yes — cities in the 7% – 8% range are among the strongest for cash flow investors. The 16 cities here average $156K in home prices and $1,263/mo in rent. Higher yields may come with lower growth or higher risk, so evaluate each city's fundamentals individually.

How many US cities have 7% – 8% cap rates?

CapRateCity tracks 16 US cities with cap rates in the 7% – 8% range. The South has the most cities in this tier (13), followed by the Midwest (2). Alabama leads with 2 cities.

What is a good cap rate for rental property?

It depends on your strategy. Above 6% is generally considered strong for cash flow. 4-6% is moderate and workable with good financing. Below 4% is challenging for cash flow but may offer superior appreciation. The national average across 300+ cities we track is 3.81%. The "best" cap rate balances yield with market quality, growth, and risk.

Related Rankings

Highest Cap Rate Cities →Best Cash Flow Cities →Cheapest Rental Markets →Fastest Growing Markets →Lowest Property Tax Cities →Best BRRRR Cities →

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