Is a 9% cap rate good?

A 9% cap rate is high. It produces strong cash flow with a normal loan and is found in low-cost markets, older stock and C-class neighborhoods. It is good if the expenses behind it are real. It is a warning if the NOI left out vacancy, management or reserves.

On a $500,000 property, 9% is $45,000 of NOI, about $5,720 in monthly rent under typical expenses, or 1.14% of price per month. Rent that high relative to price usually means a cheaper market or a property that needs work.

At 9%, borrowed money helps. A 30-year loan at 7.25% costs about 8.2% of the balance a year, so each borrowed dollar earns more than it costs and cash on cash return rises above the cap rate. The trade is risk: buyers demand 9% where tenants are less stable and appreciation is slower. Underwrite higher vacancy and maintenance.