Cap rate is the ratio of a property's net operating income to its purchase price, and whether a given number is good depends on four measurable things: asset class, market tier, financing cost, and the spread over the 10-year Treasury yield, which stood near 4.2 percent in late 2024, per US Treasury daily yield data. Multifamily cap rates have run roughly 4.5 to 5.5 percent in gateway markets and 5.5 to 7 percent in mid-tier markets in recent surveys, per CBRE's published US cap rate surveys through 2024. This is information about how the math works, not investment advice.
The honest answer to the headline question is it depends — but on numbers a reader can look up, not on taste. Here are the four dependencies, each with its own data trail.
How is cap rate calculated, exactly?
Net operating income is annual rental revenue minus operating expenses — property taxes, insurance, maintenance, management, vacancy — but before debt service. Divide by the purchase price (or current value) and the result is the cap rate. A property generating $42,000 of NOI at a $700,000 price carries a 6.0 percent cap rate. The exclusion of debt is the point: cap rate measures the asset's unlevered yield, which makes properties comparable across financing situations and makes the metric blind to the reader's actual mortgage, the subject below.
How much does asset class and market tier move the number?
Materially. Published brokerage surveys through 2024 show a persistent hierarchy: apartment and industrial assets price at lower cap rates (higher prices per dollar of income) than office or motel assets, and gateway cities price lower than mid-tier and tertiary markets, per CBRE and Marcus & Millichap survey data from 2023-2024. The spread is compensation for perceived income stability and liquidity — a class-A apartment building near a transit line in a coastal metro has a deeper buyer pool than a single-tenant retail property in a town of 20,000, and the market prices that difference in the yield buyers accept.
Why does the Treasury yield matter so much?
Because cap rates are priced relative to the risk-free alternative. An investor accepting 5 percent from an illiquid building is doing so over a risk-free 4-plus percent — a spread of less than 100 basis points, which history says is thin: the average spread of multifamily cap rates over the 10-year Treasury has run wider than that over the past two decades, per Federal Reserve and NAREIT yield data compiled in published research. When Treasury yields rose from 2022, the arbitrage compressed from both ends — debt costs rose faster than cap rates, and transactions slowed to historic lows rather than prices clearing, per MSCI Real Capital Analytics transaction data through 2024.
What is the spread over the mortgage rate?
The comparison small landlords should run first. If a property caps at 5.5 percent and 30-year investment financing costs 7.5 percent — roughly where investor loans priced in late 2024, per Freddie Mac's published multifamily and rate data — the leverage is negative: each borrowed dollar costs more than it earns, and the down payment's effective return is below the cap rate. The table shows the arithmetic at three spreads.
| Cap rate | Loan rate | Spread | Effect of borrowing |
|---|---|---|---|
| 6.5% | 7.5% | –100 bp | Negative leverage: debt reduces return on equity |
| 6.5% | 6.5% | 0 bp | Neutral: leverage neither adds nor subtracts |
| 6.5% | 5.5% | +100 bp | Positive leverage: debt amplifies equity return |
The table is an illustration of arithmetic, not a market prediction; the rates shown are round assumptions. What the data through 2024 show is that negative leverage persisted across many markets — one reason transaction volume stayed low, per Real Capital Analytics' published volumes.
So what number should a reader look for?
No single number — the four-part check. Compare the cap rate to its own market's survey figure for the same asset class, to the 10-year Treasury, to the actual financing cost available, and to the alternative uses of the same down payment. A 5 percent cap rate that clears all four comparisons in a stable metro and a 7.5 percent cap rate that fails the financing test in a shrinking town are both fully priced by their own markets. What the data supports: the metric, the comparisons, and the spreads. Where it stops: whether any specific purchase will work out — that depends on rents, expenses, and exits the surveys do not see.