Metrics

What is a good cap rate for a rental property?

Updated 2026-10-15

Cap rate is a property's annual net operating income divided by its purchase price, so it shows the yield as if you paid all cash. A property earning $12,000 of NOI on a $200,000 price has a 6% cap rate. Because it ignores financing, it is the cleanest way to compare two deals.

Cap rate is the return a property throws off if you paid all cash: its yield with financing stripped out. Because it ignores your loan, it's the cleanest way to compare two deals, and it's how buyers will price the property when you sell.

Cap Rate = Net Operating Income ÷ Purchase Price

NOI is income after operating expenses, before the mortgage. Purchase price is what you pay. On a rehab or BRRRR deal BuyBox also shows cap rate on ARV, NOI over the after-repair value, as a separate figure.

Try it

Annual NOI

Purchase price

Cap rate

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Target ranges

Good

≥ 8%

Workable

5 to 8%

Below

< 5%

"Good" is market-dependent: a 6% cap in a strong metro can beat an 8% cap in a shrinking town. Tune these in your buy box, and compare with DSCR and cash-on-cash.

What DSCR do lenders require for a rental property loan?

DSCR measures whether a property earns enough to cover its own mortgage. It's the number lenders use to decide whether (and how much) they'll lend.

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

Cash-on-cash is the return on the actual dollars you put into a deal: the first number most investors look at.