# What Is a Good Cap Rate? Benchmarks by Market and Property Type

There is no single good cap rate. It depends on market, property type, risk, and your loan rate. Here is how to judge one and what to compare it against.

**Author:** Nathaniel Pitchon-Getzels (Licensed Real Estate Partner & Investment Strategist) — https://www.scouthavens.com/about
**Published:** 2026-10-05
**Category:** Financial Modeling & Returns
**Canonical URL:** https://www.scouthavens.com/blog/what-is-a-good-cap-rate

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## The Short Answer

A good cap rate is one that compensates you for the risk of the property and the market, and that comfortably beats your cost of debt. As a rough rule of thumb, many investors look at about 5% to 8% for residential rentals in established metros and higher figures in smaller or riskier markets, but these ranges shift with interest rates and conditions, so treat them as a starting point.

Cap Rate = Net Operating Income ÷ Purchase Price

## What a Cap Rate Tells You

Cap rate is the yearly return if you bought the property with all cash. A lower cap rate usually signals lower perceived risk or stronger expected growth (buyers pay more for each dollar of income). A higher cap rate usually signals higher risk, lower demand, or an older or weaker location. Higher is not automatically better, since a high cap rate can come from income that is about to fall.

## Three Ways to Judge a Cap Rate

-   **Compare it to similar properties.** Same market, same type, same condition. A cap rate is only meaningful relative to comparable sales.
-   **Compare it to your loan rate.** If the cap rate is below your mortgage rate, borrowing reduces your cash return (negative leverage). Our [cap rate vs cash-on-cash guide](/blog/cap-rate-vs-cash-on-cash-return) shows this with numbers.
-   **Check the NOI behind it.** A cap rate built on optimistic income or missing expenses is not real. See [how to calculate NOI](/blog/how-to-calculate-noi-real-estate).

## A Quick Example

Two properties both cost $500,000. One has $35,000 of NOI (7.00% cap rate) in a smaller market. The other has $27,500 of NOI (5.50%) in a high-demand metro. The first pays more today but may carry more risk of vacancy or slow growth; the second pays less today but may hold value better. Neither is "good" on its own. It depends on what you need from the deal.

## Common Traps

-   Chasing the highest cap rate without asking why it is high.
-   Using the seller's income and expense figures without verifying them.
-   Ignoring capital expenditures that will cut real returns.
-   Comparing cap rates across different property types as if they were equivalent.

## Check Yours

Enter any property into the free [Cap Rate Calculator](/tools/cap-rate-calculator), then see how the result holds up with the [Cash-on-Cash Calculator](/tools/cash-on-cash-calculator). For current numbers in specific markets, browse our [investment market pages](/investment-markets).

## Frequently Asked Questions

**Q: What is a good cap rate for rental property?**

A: It depends on the market and risk. Many investors use roughly 5% to 8% for established residential markets as a rough starting point, and look for more in riskier or smaller markets. Compare against similar local properties and your loan rate.

**Q: Is a higher cap rate always better?**

A: No. A higher cap rate often reflects higher risk, weaker demand, or income that may not last. It needs to be judged against the market, the property condition, and the reliability of the NOI.

**Q: Should the cap rate be higher than my mortgage rate?**

A: Ideally, yes. When the cap rate is below the loan rate, leverage reduces your cash-on-cash return. That is not always a deal-breaker if you expect appreciation, but it raises the risk.

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*Source: Haven by ScoutHavens (https://www.scouthavens.com). Data methodology: https://www.scouthavens.com/methodology.*