What is a good cap rate for beginners?

A beginner should target a cap rate at or above the loan's annual cost, about 7 to 8% at current rates, computed with full expenses. That produces a property that covers itself with a normal down payment, which limits how much an early mistake costs. Avoid very high cap rates until you can judge the risk behind them.

The common beginner error is the inputs, not the target. A first-time buyer computes 8% with no vacancy, management or reserves, then discovers the real figure is 5.5%. Build NOI with 5% vacancy, 8 to 10% management and 5 to 10% reserves.

Cap rates above 10% usually come with older buildings, rougher neighborhoods and harder tenants. Experienced investors price that risk; beginners underestimate it. A 7 to 8% cap rate in a stable area is a more forgiving first property than a 12% one in a market you do not know.