2025 Cap Rate Benchmarks by Market Type
2025 cap rate benchmarks by market type and investment strategy
| Market Type | Typical Cap Rate | Investment Strategy | Example Markets |
|---|---|---|---|
| Major gateway cities | 3–5% | Appreciation focus; low current yield | NYC, SF, LA, Seattle |
| Mid-size growth metros | 5–7% | Balance of yield + appreciation | Charlotte, Columbus, Nashville, Raleigh |
| Secondary metros | 6–9% | Cash flow focus with modest appreciation | Memphis, Indianapolis, Cleveland, Birmingham |
| Small cities/suburban | 7–12% | High cash flow; limited appreciation | Various secondary/tertiary markets |
| Rural/low-demand areas | 10–15%+ | High yield; high vacancy risk | Low-growth areas |
With 10-year Treasury yields at 4.3–4.6% in 2025, investors expect rental property cap rates to exceed the risk-free rate by 150–300 basis points. This implies minimum cap rates of approximately 6% for well-located residential rentals — pushing investors toward secondary markets where properties still pencil at this threshold.
Cap Rate by Property Type
Cap rate ranges by rental property type
| Property Type | Typical Cap Rate Range | Notes |
|---|---|---|
| Single-family (SFR) | 4–8% | Wide range by market; easier management |
| Small multifamily (2–4 units) | 5–9% | Residential financing available; higher yield |
| 5+ unit apartments | 4–7% (value-add: 8–12%) | Commercial financing; larger scale |
| Short-term rental (STR) | Cap rate methodology differs | Compare to traditional rental in same market |
When to Accept a Low Cap Rate
A 4% cap rate in a gateway city with 5%+ appreciation history can produce excellent 10-year total returns: $600,000 property with 4% cap ($24,000 NOI) appreciating at 6%/year reaches $1,074,000 in 10 years. Total return: $240,000 NOI + $474,000 appreciation = $714,000 on a $120,000 down payment = 595% total return. Appreciation transforms a low-cap property into a strong investment.
Calculate Cap Rate for Any Property You’re Evaluating
Enter purchase price and NOI — see how the property compares to these benchmarks.