Cap Rate = Net Operating Income / Property Value. NOI = Gross Rent − Operating Expenses (taxes, insurance, maintenance, management, vacancy). Does NOT include mortgage payments — cap rate is pre-financing.
It depends heavily on market and property type. Single-family in high-cost markets (DC, NYC, LA): 3–5% is normal. Single-family in mid-tier markets: 5–7%. Multifamily in competitive markets: 4–6%. Multifamily in secondary markets: 6–9%. Commercial and industrial: 6–10%.
Cap rate ignores financing. Cash-on-cash return measures your actual return on invested capital after debt service. A 6% cap rate property with leverage might produce a 12% cash-on-cash return — or a 2% return if you overpay and over-leverage. Both metrics matter.
Property Value = NOI / Cap Rate. If comparable properties in your market trade at 6% cap rates and your target property generates $24,000 NOI, its market value is $400k. Use this to quickly assess whether an asking price is reasonable.
When prices rise faster than rents, cap rates compress. In 2021–2023, aggressive buyers pushed cap rates below 4% in many markets. In 2024–2026, higher interest rates have forced cap rates higher as buyers require more yield to make deals work with financing.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been analyzing rental property cap rates across Northern Virginia for over 20 years.