What is a good cap rate right now?

In 2026, a good cap rate for a financed rental is 7% or higher, because a 30-year loan at around 7% costs about 8% of the balance each year in payments. Below that, borrowing reduces your return. Most large metros still trade at 4 to 6%, so good cap rates are found mostly in lower-cost markets.

Cap rates follow interest rates with a lag. When mortgage rates rose about four points in 2022 and 2023, residential cap rates rose roughly a point, leaving the gap between cap rates and borrowing costs unusually narrow.

The benchmark is higher than in 2021, when 5% cleared a 3.5% mortgage easily. Compare a property to recent local sales and to your loan's annual cost. Above both is good right now. Below the loan cost is a bet on appreciation or on refinancing lower.