What is Cap Rate (Capitalization Rate)?
Capitalization Rate measures a property's return independent of financing. It strips away mortgages and down payments to show you the raw yield. Use it to compare properties on equal footing regardless of how each is financed.
Formula
Cap Rate = (NOI / Property Value) × 100
Good
5-8% in most markets
Great
8%+ for cash flow focused investors
Watch For
Below 3% means minimal cash flow even in premium locations
Frequently Asked Questions
What is a good Cap Rate for rental property?
A good Cap Rate is 5-8% in most markets. A great Cap Rate is 8%+ for cash flow focused investors. Be cautious if Below 3% means minimal cash flow even in premium locations.
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