Is a 5% cap rate good?

A 5% cap rate is normal for a large metro and low for a cash-flow market. It means the property yields 5% of its price in net operating income before the mortgage. At 7% interest rates a financed buyer will have negative cash flow with a standard down payment.

Five percent is a price for stability and appreciation rather than income. Newer single-family rentals in good school districts across most metros trade here.

On a $500,000 property, 5% is $25,000 of NOI, about $3,580 in monthly rent under typical expenses. A 30-year loan at 7.25% costs about 8.2% of the balance a year, so every borrowed dollar loses about three cents. That is fine if you are buying appreciation with cash to spare, and a poor deal if you need the rent to carry the loan.