Investors · US
What Is a Good Cap Rate? How to Judge One Before You Buy
By the Blurben team · · 5 min read
There is no single good cap rate. A cap rate is "good" when it is in line with, or a little above, what similar properties in the same market trade for, and when the extra yield is not just compensation for hidden risk. For context, CBRE's second-half 2025 survey put Class A stabilized apartment cap rates in cities like New York and Atlanta at roughly 4.5 to 5 percent, so a well-located newer building yielding far more than its neighbors usually deserves a closer look, not celebration. The rest of this guide shows how to calculate a cap rate correctly, what moves it up or down, and how to judge the number in front of you.
What a cap rate measures
The capitalization rate compares the income a property produces with its price:
Cap rate = net operating income (NOI) ÷ purchase price
NOI is the rent you actually collect after vacancy, minus operating expenses such as property tax, insurance, repairs, management and reserves. Mortgage payments are left out on purpose, so the cap rate tells you about the property itself, not about your loan. If you need a refresher on building NOI line by line, our guide on how to analyze a rental property walks through each step.
A quick example (illustrative numbers only)
| Line item | Annual amount |
|---|---|
| Gross rent ($1,800 × 12) | $21,600 |
| Vacancy allowance (8%) | −$1,728 |
| Operating expenses | −$7,400 |
| NOI | $12,472 |
| Asking price | $220,000 |
| Cap rate ($12,472 ÷ $220,000) | 5.7% |
These figures are made up to show the math. They are not market data. Notice how sensitive the result is: if the real insurance quote comes in $1,500 higher than the seller's figure, NOI drops to $10,972 and the cap rate falls to about 5.0 percent.
What recent surveys show
Cap rates are set by the market, so it helps to know where comparable buildings are pricing. CBRE's U.S. Cap Rate Survey is one widely followed benchmark, built from about 3,600 estimates by more than 200 CBRE professionals across more than 50 markets (Multi-Housing News). In the second half of 2025 it showed, for Class A apartments:
| Market | Class A stabilized | Class A value-add |
|---|---|---|
| New York City | 4.5% to 5% | 5% to 5.5% |
| Atlanta (infill) | 4.5% to 5% | 4.5% to 5% |
| Chicago (infill) | 5.25% to 5.5% | 5.25% to 5.75% |
| San Francisco (infill) | 4.5% to 5% | 4.75% to 5.5% |
Source: CBRE U.S. Cap Rate Survey H2 2025, as reported by Multi-Housing News.
In its first-half 2026 survey, CBRE reported that roughly 60 percent of responses expected "no change" in cap rates over the next six months, while more respondents than before expected a rise. It also found that cap rates "compressed more for class B and C and value-add than for class A and stabilized assets" (CBRE).
Two cautions. These are institutional apartment figures; a single-family rental or small duplex in a smaller city will often price differently. And survey ranges are a starting point, so always pull recent sales of similar properties in the exact neighborhood.
Why a higher cap rate is not automatically better
A higher cap rate means more income per dollar of price. Buyers usually demand that extra income for a reason:
- Location: weaker job growth, higher crime or falling population.
- Building age and condition: older roofs, systems and deferred maintenance that will eat into future NOI.
- Tenant risk: higher turnover, more late payments, more vacancy.
- Optimistic numbers: a seller's NOI that leaves out management, reserves or a realistic vacancy rate.
A lower cap rate is not automatically bad either. Buyers accept lower yields in places where they expect rents and values to grow, or where the building needs little work. The question is always whether the cap rate fairly prices the risk you are taking.
What makes cap rates rise or fall
- Interest rates: when borrowing costs and bond yields rise, investors typically ask for higher yields from property too, which pushes cap rates up and prices down.
- Local rent growth: strong expected rent growth lets buyers pay more today, which pushes cap rates down.
- Supply: a wave of new apartments can slow rent growth and lift cap rates in that submarket.
- Asset quality: CBRE's survey reports Class A and value-add assets separately because their risk differs.
How to judge the cap rate on a listing: checklist
- Rebuild NOI yourself from real rent comps, a vacancy allowance and actual bills, rather than using the seller's figure.
- Get the actual property tax bill and ask whether a sale triggers reassessment.
- Get a written insurance quote for this address.
- Include management, even if you plan to self-manage, so you can compare like with like.
- Include a capital reserve for roof, HVAC and appliances.
- Compare with recent sales of similar properties in the same neighborhood.
- Ask why the cap rate is different from its neighbors if it is far above or below them.
- Look past the cap rate: run cash flow and cash-on-cash return with real loan terms.
Cap rate vs cash-on-cash return
| Cap rate | Cash-on-cash return | |
|---|---|---|
| Formula | NOI ÷ price | Annual cash flow ÷ cash invested |
| Includes your mortgage? | No | Yes |
| Best for | Comparing properties and prices | Judging your own deal with your financing |
Use the cap rate to decide whether the price is reasonable for the market, then use cash flow to decide whether the deal works for you. If you are buying far from home, our guide on how to buy rental property out of state covers how to check numbers you cannot see in person, and you can find more in Blurben guides.
Check your next cap rate with Blurben
Blurben is an AI real-estate companion on WhatsApp and iMessage. Send it a listing and it helps you rebuild NOI from realistic rent and expenses, compare the cap rate with nearby sales, and keep every deal organized from the first search through the agreement to connecting you with vetted local professionals. Ask Blurben on WhatsApp or iMessage about the property you are looking at.
This guide is general information, not legal, tax, financial or investment advice. Market figures change; check current data and talk to licensed professionals where the property is located.
Frequently asked questions
What is a good cap rate for a rental property?
One that is in line with, or slightly above, recent sales of similar properties in the same area, after you rebuild NOI with realistic numbers. There is no single national target.
Is a 10 percent cap rate good?
It can be, but a cap rate far above nearby properties usually signals higher risk, such as an older building, a weaker location or an overstated NOI. Check why it is high before treating it as a bargain.
Does cap rate include the mortgage?
No. Cap rate uses NOI, which is calculated before mortgage payments. Cash-on-cash return is the measure that includes financing.
Why do cap rates go up when interest rates rise?
Investors compare property yields with what they can earn elsewhere and with what it costs to borrow. When those rise, buyers usually need a higher yield to justify the purchase, so prices adjust down and cap rates go up.
This guide is general information, not legal, tax, financial or investment advice. Rules change and differ by location, so check with a licensed professional before you act.
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