What Is a Good Cap Rate? Benchmarks by Property Type and Risk
A commonly cited good cap rate is 5% to 10%, but it depends on property type, location and risk. Learn how to judge a cap rate and what a high or low number really means.
Bellokey Editorial Team
Many investors treat a cap rate of roughly 5% to 10% as "good", but there is no single number that suits every property. What counts as good depends on the property type, the location, the risk you accept and your financing. Treat any range as a starting point for comparison, not a rule.
What does a cap rate tell you?
Cap rate is net operating income divided by property value. It shows the income yield of a property if bought with cash, which makes it useful for comparing properties. It does not include financing, depreciation or future growth. For the basics, read our complete guide to cap rates.
Is a higher cap rate better?
Not automatically. A higher cap rate means more income for the price, but it often signals higher risk: weaker locations, older buildings, tenant turnover or uncertain demand. A lower cap rate usually means a lower-risk, in-demand asset where buyers accept less income for stability and growth potential.
- Lower cap rate: typically prime locations, strong tenant demand, lower perceived risk, longer payback on income alone.
- Higher cap rate: typically secondary locations or properties needing work, higher income for the price, more risk.
Typical cap rate ranges by property type
Published ranges differ by source and market, so use these only as a rough guide and check local data:
| Property type | Commonly cited range |
|---|---|
| Multifamily | about 4% to 7% |
| Single-family rental | about 5% to 8% |
| Commercial | about 4% to 10% |
How to judge a cap rate for your deal
- Compare it with similar properties in the same neighborhood, not with national averages.
- Check the NOI assumptions: realistic vacancy, maintenance and management costs.
- Weigh it against your financing cost and your goals (income now versus growth).
- Combine it with cash flow and cash-on-cash return.
What is considered a good cap rate?
A good cap rate is one that fairly pays you for the risk of that specific property. Lower cap rates are typical of prime, low-risk properties in strong locations, where buyers accept less income for stability and growth potential. Higher cap rates are typical of riskier properties or locations, where buyers want more income in return. Compare a property's cap rate with similar properties in the same market, with your borrowing cost and with the vacancy and repair risk you are taking on.
Frequently asked questions
What is considered a good cap rate?
One that fairly rewards the risk of the specific property. Compare it with similar properties in the same market and with your borrowing cost, rather than using one universal number.
What is a good cap rate for a rental property?
Many investors look for about 5% to 10%, but the right figure depends on location, property type and risk. Compare against similar local properties.
Is a 4% cap rate bad?
Not necessarily. A 4% cap rate can be normal for a prime, lower-risk market where buyers accept lower income for stability and appreciation, but it means a longer payback from income alone.
Does cap rate include the mortgage?
No. Cap rate ignores financing, so it does not reflect mortgage payments. Use cash-on-cash return to see the return after debt.
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