Calculate your property's cap rate

What is a good cap rate for rental property?

Cap rates vary by market and property type. Generally, 4-6% is common in stable, appreciating markets, while 8-12% is typical in higher-risk or secondary markets. A 'good' rate depends on your investment goals, risk tolerance, and local market conditions.

What's the difference between cap rate and ROI?

Cap rate measures property value relative to NOI without considering financing. ROI (Return on Investment) factors in your actual cash invested, including down payment and financing costs. Use cap rate to compare properties; use ROI to evaluate your specific deal.

Does cap rate include mortgage payments?

No. Cap rate is calculated before financing costs. It represents the return if you paid all cash. This makes it useful for comparing properties regardless of how they're financed.

Why do lower cap rates mean higher prices?

Cap rate = NOI / Property Value. When investors accept lower returns (lower cap rates), they're willing to pay more for the same income stream. This typically happens in desirable, stable markets where appreciation potential is high.

Should I use cap rate for single-family rentals?

Cap rate works best for comparing similar income-producing properties. For single-family homes, also consider appreciation potential, neighborhood trends, and cash-on-cash return since these properties often have different investment dynamics than multifamily.