What Is a Good Cap Rate? Benchmarks for Rental Investors (2026)

What is a good cap rate?

Short answer, 5 to 7% is a solid range for single-family rentals in 2026, and at today's 6.8% mortgage rate you need a cap rate in the low-to-mid 7% range to clear a lender's 1.2 DSCR. Below 5% you are paying for appreciation or safety; above 8% usually means a cheaper, higher-risk market. The right number is the one that pays you fairly for the risk you take.

Cap rate benchmarks

Cap rate	Typical market	Trade-off
3–5%	Prime coastal / hot Sun Belt	Low yield, strong appreciation, high competition
5–7%	Solid secondary markets	Balanced yield and stability, the 2026 norm
7–9%	Midwest / lower-cost South	Stronger cash flow, slower appreciation, more management
9%+	Rougher / declining areas	High yield on paper, higher vacancy and risk

Bands are illustrative. The table below shows where today’s tracked metros actually fall.

Where today’s metros land

Metro	Cap rate	DSCR	Cash-on-cash	Clears 1.2 DSCR?
Birmingham, AL	8.5%	1.45	+9.5%	Yes
Memphis, TN	8.3%	1.42	+8.8%	Yes
Chicago, IL	7.2%	1.23	+4.8%	Yes
Cleveland, OH	7.2%	1.22	+4.6%	Yes
Tampa, FL	6.2%	1.05	+1.0%	No
Dallas, TX	4.8%	0.82	−3.9%	No
Phoenix, AZ	3.8%	0.65	−7.4%	No

Live Zillow data, June 2026. The 6.8% 30-year mortgage rate is a current market estimate. See the full 18-metro Investor Yield Index.

A good cap rate is relative to risk

A 9% cap rate looks great until you price in the higher vacancy, turnover, and maintenance of the markets that produce it. The better question is not which deal shows the highest cap rate, but which cap rate pays you fairly for the risk you are taking. A 5% cap in a prime market can beat an 8% cap in a declining one once you count repairs and empty months.

The 2026 catch

At a 6.8% mortgage rate, only 6 of the 18 metros we track run a positive cash-on-cash return on a 25% down purchase, and only 4 clear a lender's 1.2 DSCR. The split is geographic. The cheaper Midwest and Southern metros cash-flow, while the pricier coastal and Sun Belt metros do not. Cleveland clears the bar at a 7.2% cap rate with a 1.22 DSCR and +4.6% cash-on-cash, but Phoenix, at a 3.8% cap rate, runs roughly 7% in the red. A good cap rate on paper does not guarantee positive cash flow after financing, which is why the Index blends cap rate, yield, DSCR, and cash-on-cash instead of trusting any single number.

See the math at the cap rate formula, then compare it with cash-on-cash return.

Common questions

Is a higher cap rate always better?

Not necessarily. Very high cap rates often signal higher risk, rougher neighborhoods, older stock, or weaker appreciation. A 5% cap in a prime market can outperform an 8% cap in a declining one.

What cap rate do lenders want for DSCR loans?

There is no fixed cap-rate rule, but lenders look for a 1.2 DSCR. At 2026 financing that takes a cap rate in the low-to-mid 7% range or higher. Four of the 18 metros in our Investor Yield Index clear that line today: Cleveland, Memphis, Birmingham, and Chicago. Birmingham leads with an 8.5% cap rate and a 1.45 DSCR.

Cap rate vs. cash-on-cash, which one is good?

Cap rate gauges the property; cash-on-cash gauges your financed return. In a high-rate year a healthy cap rate can still mean a negative cash-on-cash. Only 6 of the 18 metros we track run a positive cash-on-cash return today. Watch both.