What is a good cap rate for rental property?

A "good" cap rate depends on your market and strategy. In gateway cities like San Francisco or New York, 3-5% is typical. In secondary markets, 5-7% is common. Cash-flow-focused investors in the Midwest or South often target 7-10%.

What is the cap rate formula?

Cap Rate = Net Operating Income (NOI) / Purchase Price × 100. NOI is your annual rental income minus all operating expenses (property taxes, insurance, maintenance, management) but excluding mortgage payments.

Does cap rate include mortgage payments?

No. Cap rate measures the unlevered return on a property — it ignores how you finance the purchase. This makes it useful for comparing properties regardless of financing. Use cash-on-cash return to factor in your mortgage.

Cap Rate Calculator

Capitalization rate measures the unlevered return on a property relative to its purchase price. It's the fastest way to compare deals across markets, property types, and price points.

Property

Purchase Price

Annual Gross Rental Income

Total rent collected per year before any deductions

Vacancy Rate

Annual Operating Expenses

Do not include mortgage payments — cap rate measures unlevered return.

Property Taxes

Insurance

Maintenance & Repairs

Property Management

Typically 8-10% of gross rent

Other (HOA, Utilities, etc.)

Results

Cap Rate

0.00%

Effective Gross Income$0

Total Operating Expenses($0)

Net Operating Income (NOI)$0

Expense Ratio0.0%

Cap Rate = NOI / Purchase Price × 100

How to Use the Cap Rate Calculator

1. Enter the purchase price — the total acquisition cost of the property (or current market value if you already own it).

2. Enter annual gross rent — the total rent you expect to collect each year before any deductions.

3. Adjust the vacancy rate — 5% is a reasonable default for stable markets, but adjust up for higher-risk areas or turnover-heavy properties.

4. Enter operating expenses — property taxes, insurance, maintenance, and management fees. Do not include mortgage payments — cap rate measures the property's return before financing.

What Is a Good Cap Rate?

There's no single “good” cap rate — it depends on your strategy, market, and risk tolerance:

Cap Rate	Typical Market	Investor Profile
3-5%	Gateway cities (SF, NYC, LA)	Appreciation-focused, lower risk
5-7%	Secondary markets, suburbs	Balanced cash flow + growth
7-10%	Midwest, South, tertiary markets	Cash-flow focused
10%+	High-risk or distressed areas	Experienced investors, value-add

Cap Rate vs. Cash-on-Cash Return

Cap rate and cash-on-cash return are both essential metrics, but they measure different things:

Cap rate ignores financing. It tells you how the property performs regardless of how you pay for it.
Cash-on-cash return factors in your mortgage. It tells you how your invested cash is performing.

Use cap rate to compare properties. Use cash-on-cash to evaluate how a specific deal works with your financing.