Is a 10% cap rate good?

A 10% cap rate is very high for a residential rental. It produces strong cash flow with a normal loan, since a 30-year mortgage at 7.25% costs about 8.2% of the balance a year. It is good if the expenses behind it are complete, and suspicious if they are not.

On a $500,000 property, 10% is $50,000 of NOI, about $6,260 in monthly rent under typical expenses, or 1.25% of price per month. Rent that high relative to price is found in cheap markets, on distressed property, or in listings that skipped vacancy, management and reserves.

When it is real, 10% comes with the risks that produced it: turnover, older systems, weaker demand, little appreciation. When it is not, adding the missing expenses usually lands the property near 7%. Either way, rebuild the NOI line by line first.