Overview
A cap rate is a simple way to measure how much a rental property earns each year, compared to its price. It's expressed as a percentage.
Nationally, most rental properties earn between 3% and 9% a year. Condos usually sit at the low end (3%–6%) because of HOA fees. Single-family homes typically earn 4%–7%. Multifamily buildings tend to earn the most (5%–8%+).
Want the number for your own property? Use our free cap rate calculator.
What Is a Cap Rate?
A cap rate tells you how much a property earns each year, before you factor in your mortgage. It's the same for a cash buyer and a buyer with a loan — it only looks at the property's income, not how you paid for it.
The formula:
Cap Rate = Net Operating Income ÷ Property Value
A quick example:
- A property earns $30,000 a year after expenses
- It's worth $500,000
- $30,000 ÷ $500,000 = 6% cap rate
That 6% lets you compare this property to any other property — a condo, a house, a duplex — on the same scale, no matter the price or location.
How to Calculate Your Own Cap Rate
Step 1: Add up your annual income
- Rent
- Parking or storage fees
- Pet fees
- Any other fees you collect
Step 2: Subtract your annual expenses
- Property taxes
- Insurance
- Repairs and maintenance
- Property management fees
- HOA fees (for condos)
- A vacancy allowance (money set aside for months the unit sits empty)
Don't subtract: your mortgage payment, loan interest, or the cost of major renovations. Cap rate is calculated before any of that.
What's left after subtracting expenses is your Net Operating Income (NOI).
Step 3: Divide
NOI ÷ Property Value = your cap rate. Skip the math and use our cap rate calculator instead.
Why Cap Rate Is Useful
- It lets you compare properties fast, no matter the price
- It shows you what a property should be worth, based on its income
- It's a quick read on risk
The rule of thumb: a lower cap rate usually means a safer property in high demand. A higher cap rate usually means more return, but more risk too.
What Counts as a Good Cap Rate?
There's no single "good" number — it depends on how much risk you're comfortable with.
- 4%–5%: safer, in-demand markets
- 5%–7%: a solid, balanced return
- 7%–9%+: higher return, but higher risk
A low cap rate isn't a bad sign. It usually just means the property is in a market people really want to be in.
Cap Rate by Property Type
Condos: typically 3%–6%
Condos usually earn the least, because of:
- HOA fees, which come straight out of your income
- Higher purchase prices per square foot in many markets
- Rental restrictions some buildings put in place
In several states, new safety and reserve-funding laws passed after high-profile building failures have pushed HOA fees up further, squeezing this range even more in older buildings.
Single-family homes: typically 4%–7%
No HOA fee means more of the rent reaches you. But you're on the hook for every repair, and insurance is often the biggest expense — especially in coastal markets.
Multifamily properties: typically 5%–8%+
Multiple units mean multiple income streams, which spreads out your risk. If one unit sits empty, the others keep paying the bills.
Cap Rates by Major U.S. Metro
Where a property sits matters as much as what kind of property it is:
| City | Typical Cap Rate |
|---|---|
| New York City | 3.5%–5% |
| San Francisco | 3.5%–5% |
| Los Angeles | 4%–5% |
| Washington, DC | 4%–5% |
| Miami | 2%–8%, depending on property type and neighborhood |
| Secondary markets | 6%–9%+ |
Big, in-demand cities tend to have lower, steadier cap rates — prices are bid up by strong buyer demand. Smaller markets usually offer higher cap rates, with more risk attached.
Condo vs. Single-Family Home: A National Example
Here's how a typical U.S. condo stacks up against a typical U.S. single-family home. These are national averages — a useful starting point before you adjust for your own market.
The basics
| Condo | Single-Family Home | |
|---|---|---|
| Typical size | 1,100 sq ft | 1,800 sq ft |
| Median price | $365,000 | $435,000 |
| Average monthly rent | $1,930 | $2,174 |
The full math
| Annual numbers | Condo | Single-Family Home |
|---|---|---|
| Rent collected | $23,160 | $26,088 |
| HOA fee | −$4,440 | $0 |
| Property tax | −$3,650 | −$4,350 |
| Insurance | −$650 | −$2,500 |
| Property management (8%) | −$1,850 | −$2,090 |
| Vacancy allowance (5%) | −$1,160 | −$1,305 |
| Maintenance/repairs | −$695 | −$2,090 |
| Net Operating Income | $10,715 | $13,753 |
| Cap Rate | 2.9% | 3.2% |
The single-family home wins here, even though it costs more: it rents for more per month, and there's no HOA fee eating into the return. That HOA fee — $4,440 a year, nearly a fifth of the condo's rent — is the single biggest reason the condo falls behind. Its lower price, lower insurance, and lower maintenance costs (the HOA handles the exterior) help close the gap, but don't fully close it.
One important note: this balance can flip in expensive-insurance coastal markets. If a single-family owner is paying a huge insurance bill alone, that can hurt its return more than a condo's HOA fee does. Always run the numbers for your specific market — see our Miami cap rate guide for an example of exactly that.
Sources: median prices from the National Association of Realtors (single-family, Q2 2026; condo/co-op, most recent NAR data); rent from Zillow (single-family, March 2026) and Apartments.com (national 2-bedroom average, July 2026); HOA fee from U.S. Census Bureau data and 2026 industry fee surveys. Property tax and insurance are national averages and will vary a lot by state, county, and insurer.
Want to test this against a property you're looking at? Use our cap rate calculator for an instant answer.
How Allioo Helps You Evaluate a Property
- Landlords see cap rate insights right in their dashboard when reviewing lease offers
- Our free cap rate calculator gives you an instant number for any property
Deciding whether to keep or sell a property? Our guide on calculating true ownership costs over time is a good next read. Investing in Miami specifically? Check out our Miami cap rate guide, with real numbers by neighborhood.
Frequently Asked Questions
What's a good cap rate for a rental property?
Most properties nationally earn between 3% and 9% a year. Condos typically run 3%–6%. Single-family homes typically run 4%–7%. Multifamily properties run 5%–8%+. A lower number usually means a safer, more in-demand property. A higher number means more income, but more risk.
Does cap rate include my mortgage payment?
No. It only looks at the property's income and expenses — not how you're financing it. That means a cash buyer and a buyer with a loan get the same cap rate on the same property. Your actual return after the mortgage (called cash-on-cash return) will be a different number.
How is cap rate different from ROI?
Cap rate measures the property's income on its own. ROI factors in your down payment and loan terms too. Use cap rate to compare different properties. Use ROI to evaluate your specific deal, with your specific financing.
Why are condo cap rates usually lower than house or multifamily cap rates?
HOA fees and rising insurance eat into a condo's income even when rent is strong. In some states, new reserve-funding laws have pushed HOA fees up even further. That combination usually keeps condo cap rates below single-family and multifamily rates — though in a few high-insurance coastal markets, single-family homes can actually fall behind condos instead.
How do I calculate my own cap rate?
Add up your annual rent, subtract your annual expenses (taxes, insurance, HOA, management, vacancy — not your mortgage), and divide the result by the property's value. Or just use our free cap rate calculator and skip the math.
What Cap Rate Doesn't Tell You
Cap rate is a great starting point, but it doesn't account for:
- How you're financing the property
- Tax benefits of ownership
- Future rent growth
- How much the property might appreciate
- Money you put into renovations
Use it alongside cash flow, ROI, and where the market is headed — not as the only number that matters.