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 is cash-on-cash return?

Cash-on-cash return is the annual pre-tax cash flow a rental property generates divided by the total cash you put into the deal (down payment plus closing costs plus any out-of-pocket rehab). Unlike cap rate, it includes financing — leverage typically boosts cash-on-cash above the cap rate when the property cash-flows after debt service.

What is a good cash-on-cash return on rental property in 2026?

In 2026 mortgage-rate environment, 8%+ cash-on-cash is the working benchmark for leveraged single-family rentals. 6–8% is acceptable in higher-appreciation markets where total return is driven more by equity buildup than cash flow. Below 6% generally requires a strong non-cash-flow thesis (appreciation, depreciation, future refi, or owner-occupied house hack).

How does cash-on-cash return differ from cap rate?

Cap rate measures the property's unleveraged return (NOI ÷ purchase price) and is used to compare properties before financing. Cash-on-cash return measures the leveraged return on your actual cash (pre-tax cash flow ÷ cash invested) and reflects how the property performs with your specific loan terms.

Does cash-on-cash include appreciation?

No. Cash-on-cash measures cash flow only — appreciation, mortgage principal paydown, and depreciation tax benefits are not included. To capture full total return, combine cash-on-cash with annual appreciation, principal paydown, and tax savings. Most rentals show 2–4x higher total return than the headline cash-on-cash number.

Should I use today's mortgage rate or a stress-tested rate?

Always model the deal at the actual rate you're being quoted, then run a sensitivity at +1% and +2% to stress-test. Cash-on-cash that only works at the absolute lowest rate you can get is fragile — the deal needs margin for rate changes at refinance, escrow surprises, or rent softening.

Where does the calculator pull default numbers from?

Defaults reflect 2026 national medians from Zillow ZHVI (home values), Zillow ZORI (asking rents), and county-level effective property tax rates. For city-specific defaults, use the corresponding city page — every one of the 775 city pages pre-fills the calculators with that city's medians.