“Is a 7% cap rate good?” is one of the most-Googled questions in real estate investing — and one of the worst-answered. The honest answer is: it depends. On the market. On the rate environment. On the property type. On what alternative investments you're comparing it to. This post gives you the framework professional investors actually use to decide whether a cap rate is good, instead of leaving you with another vague internet number.
The 60-second answer
In 2026, treat these as your rough benchmarks:
- Cash-flow markets (Cleveland, Indianapolis, Memphis, Birmingham, older Sun Belt multifamily): 6-10%is healthy. Above 10% requires scrutiny.
- Balanced markets (Atlanta, Phoenix, Charlotte, Nashville, Austin): 5-7% is typical. The trade-off is mix of cash flow + appreciation.
- Appreciation markets (Bay Area, Seattle, Boston, Manhattan, coastal California, Miami): 3-5% is the norm. Return depends on price growth, not yield.
But these benchmarks shifted up by ~1-1.5 percentage points in 2024 when mortgage rates went vertical, and most sellers haven't fully adjusted. Anyone underwriting at pre-2022 benchmarks today is buying into negative leverage without realizing it.
The right way to evaluate a cap rate
Three comparisons matter. Skip any one and you'll either overpay or pass on something genuinely good.
1. Compare to the local market median
What's the typical cap rate for similar properties in this specific submarket? Brokers usually know. CoStar, RealPage, and CBRE quarterly reports publish this for multifamily. For single-family rentals, scan recently-sold listings on the MLS for 6 months and compute the median yourself. If the deal you're looking at is materially below market, the seller is either underpriced or hiding something. Above market, you have negotiating room.
2. Compare to the 10-year Treasury yield
The 10-year Treasury is the closest thing to a risk-free return. Real estate isn't risk-free — tenants leave, roofs leak, properties don't sell on demand. Your cap rate needs to compensate for all of that PLUS a real return on top.
The rule professional investors use: cap rate should beat the 10-year Treasury by at least 200-300 basis points (2-3 percentage points).With 10-year Treasuries at ~4.5% in mid-2026, that puts your cap rate floor at roughly 6.5-7.5%. Below that, you're explicitly accepting sub-risk-free risk-adjusted return, which only makes sense if (a) you have a strong appreciation thesis or (b) you're harvesting meaningful tax benefits (depreciation shield, 1031 exchange optionality).
3. Compare to your borrowing cost
This is the one that's catching most investors flat-footed in 2026. If your mortgage rate is 7%, every dollar you borrow costs 7% per year. If the property earns a 6% cap rate, every borrowed dollar is LOSING 1% per year. That's called negative leverageand it's the dominant problem in 2026 underwriting.
You can still buy negative-leverage deals — sometimes they're justified by appreciation, principal paydown, or tax benefits. But you need to know what you're signing up for. Don't accidentally buy negative leverage because you anchored on pre-2022 cap-rate intuition.
Cap rate benchmarks by market type
| Market type | Typical cap (2026) | Return assumption |
|---|---|---|
| Cash-flow secondary (Midwest, older Sun Belt MF) | 6-10% | Mostly cash flow |
| Balanced growth (Sun Belt primary) | 5-7% | Mix cash flow + appreciation |
| Appreciation (coastal Tier-1) | 3-5% | Mostly appreciation |
| Luxury / ultra-coastal | 2-4% | Trophy asset, capital preservation |
| Distressed / value-add | 10%+ pro-forma | Forced appreciation via reno |
Cap rate red flags
Pro-forma cap rate that's 30%+ above trailing
If the broker's pro-forma cap rate (their projected performance for you) is dramatically higher than the trailing 12-month actual, ask why. Usually it's assumed rent bumps that may or may not be achievable, plus aggressive expense assumptions. Recompute using trailing actuals first, then layer on YOUR conservative growth assumptions.
Cap rate below the 10-year Treasury
Sub-Treasury cap rates require either strong appreciation thesis, tax-strategy harvest, or trophy-asset rationale. If you can't articulate which one in two sentences, walk.
Cap rate that doesn't include CapEx reserves
Many cap-rate quotes leave out capital expenditure reserves (the 5-10% of rent you'll need for roof, HVAC, water heater replacements over time). Honest NOI includes a CapEx reserve. If yours doesn't, you're overstating cap rate by 50-100 basis points.
The simplest way to check
Stop trying to remember the right number. Plug your specific property into a calculator that computes cap rate, compares to current Treasury yield, flags negative leverage, and stress-tests against -10% rent. Takes 30 seconds. Tells you whether the cap rate is genuinely good for THIS property in TODAY's rate environment — not based on benchmarks from a 2019 BiggerPockets article.
Or, if you just want the standalone math: free cap-rate calculator →
FAQ
What's considered a good cap rate?
Market-dependent. In 2026: 6-10% is strong in cash-flow markets (Midwest, Sun Belt secondary), 4-6% is typical in balanced markets, 3-5% is the norm in coastal Tier-1 markets where appreciation does the heavy lifting. The universal rule: your cap rate should comfortably exceed the 10-year Treasury yield (~4-5% in mid-2026) — otherwise you're taking real-estate-level risk for less than risk-free return.
What's the highest cap rate I should look for?
There's no upper limit on cap rate that automatically means 'good deal'. A 15% cap rate property in a declining neighborhood with high turnover is worse than a 6% cap rate property in a steady appreciating market. Above ~10%, scrutinize WHY: is it the neighborhood (vacancy risk, tenant quality), the property condition (deferred maintenance, looming capex), the rents (above-market and unsustainable), or genuinely a distressed seller?
Is a 5% cap rate too low?
Depends on the market and your strategy. In a coastal appreciation market (Bay Area, Boston, Manhattan, Seattle), 5% caps are the entry point and you accept the cash-flow trade-off for appreciation upside. In a Sun Belt cash-flow market, 5% is uncompetitive — there are better deals available. With 2026 mortgage rates at 6.5-7.5%, a 5% cap rate creates negative leverage — your borrowed money costs more than the property earns.
What's a good cap rate vs. the 10-year Treasury?
Cap rate should exceed the 10-year Treasury by at least 2-3 percentage points to compensate for real estate's illiquidity, tenant risk, and operational headache. With 10-year Treasuries yielding ~4.5% in mid-2026, that puts a 'reasonable' cap rate floor at roughly 6.5-7.5% before adjustments for market quality, property condition, or appreciation thesis.
Has 'good cap rate' changed over the past few years?
Significantly. From 2010-2022 with mortgage rates at 3-5%, cap rates of 5-6% were attractive because leverage was nearly free. In 2026 with rates at 6.5-7.5%, that same 5-6% cap rate is mediocre — leverage costs more than the property earns. The 'good cap rate' bar has risen by roughly 1-1.5 percentage points to compensate. Sellers haven't fully repriced, which is why so many deals 2024-26 don't pencil.
Should I use NOI or pro-forma NOI for cap rate?
For triage: pro-forma NOI (your projected operating performance once you take over). For final underwriting: trailing 12-month actual NOI from the seller's books, if available, plus your conservative adjustments. Brokers will pitch optimistic pro-forma cap rates — always recompute using your own assumptions before deciding.