Rental Property Cap Rate by Market
Tier 1 coastal median 4.2%. Secondary metros 6.2%. Emerging markets 8.0%. Tertiary 10.5%. See how your property ranks against its market tier.
Growth metros with balanced cash flow and appreciation
How the Benchmark Works
Cap rates vary 3x+ across markets for structural reasons — appreciation expectations, tenant quality, and liquidity. The right benchmark is your market tier, not a national average.
1. Pick your segment
Benchmarks vary wildly across segments. The right comparison is your peer group, not the industry at large.
2. Enter your number
Your actual metric from last quarter or year. Use a trailing-12-month average if your numbers are volatile.
3. See your percentile
Result maps to a percentile against your peer segment's P10, P25, P50, P75, and P90 benchmarks.
Frequently Asked Questions
How is cap rate calculated?
Cap Rate = Net Operating Income / Property Value × 100. NOI = Gross rent - operating expenses (property management, insurance, tax, maintenance, vacancy reserve). Cap rate deliberately excludes financing.
Why are Tier 1 coastal cap rates so low?
Investors bid up prices expecting long-term appreciation. You accept a 4% cap rate today for expected 3-5% annual appreciation. In emerging markets, you get 9% cap rate but less appreciation. Both can produce similar total returns.
What is a good cap rate for rental property in 2026?
With mortgage rates 6.5-7.5%, cap rates need to be 1%+ above mortgage rate for positive cash flow at 20-25% down. That means 7.5%+ cap rate in most markets. Sub-5% cap rates only work for all-cash buyers or appreciation bettors.
How does cap rate relate to cash-on-cash return?
Cap rate measures unleveraged asset yield; cash-on-cash measures leveraged cash yield on your actual capital. A 6% cap rate with 25% down and 7% mortgage produces roughly 3-4% cash-on-cash.
Should I buy in a low cap rate market or high cap rate market?
Low cap rate (Tier 1): prioritize appreciation, safer tenant pool, slower cash flow. High cap rate (tertiary): prioritize immediate cash flow, accept higher vacancy and tenant risk. Many investors do both.
How do I increase a property's cap rate after purchase?
Two levers: increase NOI or reduce basis. NOI levers: raise rent to market, cut management fees, reduce vacancy, tax appeal, preventive maintenance. A 10% NOI improvement translates directly to 10% cap rate improvement.
Where is this benchmark data from?
CBRE Multifamily Market Reports, Marcus & Millichap quarterly reports, Roofstock market analyses, and public REIT disclosures. Reflects 2024-2025 single-family and small-multi-family residential rental cap rates.
Does this include commercial cap rates?
No — this tool is for residential rentals (single-family, small multi-family). Commercial cap rates behave differently and have separate benchmarks. Office in particular has seen significant dispersion since 2020.
Track Cap Rate Across Your Portfolio
Watch NOI and property value shifts across multiple rentals. Get alerted when cap rate degrades below your target threshold.